Atea ASA

OSE:ATEA

Earnings Call Analysis

Atea's Mixed Q4 Results Amidst Long-Term Growth

In Q4 2023, Atea saw gross sales grow by 3.2% to NOK 14.4 billion, while EBIT dropped 9% to NOK 405 million and free cash flow increased compared to the previous year. Despite a dip in sales, their full year boasted record high revenue and EBIT, with a strong operations cash flow. Gross margins improved significantly to 29.8%, with gross profit rising 7.1% year-over-year, countering lower hardware sales. Atea underscores its central role in a transforming industry marked by AI development, positioned between tech producers and end users. Looking forward, Atea adheres to its guidance of high single-digit revenue growth and double EBIT growth relative to revenue.

Enduring Success Amidst Changing Market Dynamics

Atea caps off the fiscal year with sturdy financial results, demonstrating resilience in the face of the post-pandemic normalization of market demands. A year of record-breaking revenue and EBIT underlines Atea's robust performance, despite a dip in year-over-year quarterly figures. Such stability attests to the company's strength, with its long-term double-digit EBIT growth target remaining steadfast, echoed by a promising start to the new fiscal year, as highlighted in the Q4 and 2023 earnings presentation.

Stellar Revenue and Profitability Growth

The tale of Atea's growth is one of overcoming challenges and seizing opportunities. With a long-term compounded growth rate of 7.7% in revenue from Q4 2021 to Q4 2023, the company has effectively navigated a volatile market. Despite a slight 4.3% fall in Q4 revenue attributed to reduced high hardware sales, the overall increase in gross sales to NOK 14.4 billion indicates a steady trajectory. This growth is a testimony to Atea's ability to adapt and flourish, leveraging strong software and services sectors, which saw a 10% and 7% uptick, respectively.

Gross Margin and EBIT Recuperation

Q4 saw a vigorous recovery in gross margins, climbing to 29.8%, a noteworthy improvement from the previous year's 26.7%. Even as hardware margins experienced pressure, Atea fine-tuned its cost structures, enhancing profitability with a 7.1% rise in gross profit. Although the operating earnings (EBIT) receded by 9.9% compared to a year prior, this reflects a realignment with long-term trends following a period of atypical growth, reinforcing the company's tenacious profitability even amidst market recalibrations.

Robust Cash Flow and Financial Prudence

Atea's strategic moves in inventory management and working capital optimization bolstered its cash flow, a sure sign of financial prudence. Q4 free cash flow surged significantly, promising a stable financial footing with NOK 1.6 billion in operations and a positive net cash position of NOK 961 million. Atea demonstrates adeptness at managing its resources, maintaining ample debt capacity, and showcasing net cash well within its loan covenant limits, which adds to Atea's fiscal fortitude.

Forecasting High Single-Digit Revenue Growth

Atea stands by its long-term guiding principle of high single-digit revenue growth coupled with EBIT growth. The company's proactive strategies, apparent in its successful early-year performance, reinforce confidence in its growth trajectory. With the advent of AI and the release of restrained products like Microsoft's CoPilot, Atea is poised to tap into burgeoning market opportunities, offering a blend of hardware and software solutions tailored to diverse customer needs, including AI-ready PCs and services in anticipation of Windows 10 end-of-life.

Future-Proofing Through Innovation and Market Acumen

Atea's foresight in aligning with AI megatrends sets the stage for sustained innovation. Through partnerships with technology visionaries like NVIDIA, Microsoft, Google, and IBM, Atea positions itself at the nexus of technology provisioning. Anticipating customer trepidations regarding AI adoption, Atea is ready to shepherd them through this transformative era, exploiting AI as 'automation on steroids' and boosting managed services—future-proofing its business by bridging the gap between tech providers and users.

Dividends, Buybacks, and Acquisitions Outlook

Solid earnings translate into shareholder rewards, with Atea scheduled to disburse two cash repayments in 2024, reflective of its attractive 2023 performance. While the company remains open to strategic acquisitions, its conservative approach to buybacks signifies a preference for dividends. This shareholder value-oriented stance affirms Atea's commitment to maintaining a strong balance sheet while actively exploring growth through acquisition opportunities.

Earnings Call Transcript 2023-Q4

[Steinar Sonsteby, executive]

Good morning, and welcome to the Q4 and 2023 presentation of the Atea results here from snowy Oslo. Let's take a look at the overall numbers. The gross sales came in at NOK 14.4 billion, up about 3.2%. The EBIT came in at NOK 405 million, down a little more than 9%. And the free cash flow of NOK 1.5 billion, up from last year.

A little slower on the gross sales than you and we expected due to some delivery problems in the end of Q4. But after all, the second best quarter in the history of the company.

And as always, I'll leave it to Robert to take you through the details.

[Robert Giori, executive]

Thank you, Steinar. Atea reported lower financial results in the fourth quarter of 2023 compared with an exceptionally strong sales period last year. At the same time, Atea finished 2023 with record high revenue and EBIT for the full year and very strong cash flow from operations.

If we look at the last 2 years by quarter, Atea had a period of abnormally high sales growth from Q3 2022 to Q1 2023 when Atea's revenue grew by over 20% each quarter. This was a period of time after the COVID pandemic when both supply and demand trends were unusually favorable for Atea, particularly within hardware.

On the supply side, global constraints in hardware manufacturing were easing, and Atea was able to deliver a large number of customer orders, which have been held up in backlog. On the demand side, customers were investing large sums to upgrade their workplace IT environments as their employees return to on-premise work after the pandemic.

As we've stated in previous reports, these short-term tailwinds have faded since the second half of 2023. And the market environment has returned to a more normal level of demand. As a result, we're now seeing a negative revenue trend compared with the exceptionally high sales volumes last year.

If we look deeper at the revenue trends in Q4. Total revenue in Q4 2023 was NOK 9.4 billion, down 4.3% from an exceptionally strong sales quarter last year when Atea's revenue grew by over 20%. The revenue decline in Q4 2023 was driven by lower hardware sales, which fell by 8.8% from last year. Otherwise, software revenue grew by 10% from last year with higher demand from the public sector. And services revenue grew by 7% based on strong sales of managed services.

When we consider more than just the year-over-year comparison, the longer-term demand trend for Atea remains highly favorable. Over the 2-year period from Q4 2021 to Q4 2023, Atea's revenue has increased at a compounded growth rate of 7.7% per year. During this 2-year period, hardware revenue has grown at a rate of 6.5% per year. Software revenue has grown at a rate of 14.8% per year, and services revenue has grown by 10.0% per year. Atea remains on a solid long-term growth trajectory, but with exceptional growth in Q4 last year and a return to the normal long-term trend line in Q4 2023.

Let's now look at our gross margin and gross profit trends. Atea's gross margin in Q4 2023 recovered strongly from abnormally weak levels last year when hardware margins were squeezed by a combination of inflation and longer delivery times. Gross margin in Q4 2023 increased to 29.8%, up from 26.7% in Q4 2022 and exceeding the level seen in 2021.

Based on the higher gross margin, Atea's gross profit in Q4 2023 grew by 7.1% to NOK 2.8 billion. This overall trend of slower hardware revenue but improved gross margins we've seen in all of Atea's geographic markets. Atea's not losing any major hardware agreements. The market is simply returning to a long-term trend line after abnormally high sales volumes last year.

Due to lower hardware sales, revenue and EBIT fell in all Nordic countries. In the Baltics, where hardware is a smaller proportion of the business, EBIT increased by over 12% due to strong sales of consulting and managed services. Finally, Atea Group functions, which includes shared services and group costs, had a net operating expense, which was NOK 15 million less than last year. The difference was mainly due to lower corporate expenses and higher profits in Atea's logistics operations. In sum, Atea reported an EBIT of NOK 405 million in the fourth quarter, down 9.9% from last year.

Now word on our cash flow and balance sheet. Atea's cash flow from operations was an inflow of NOK 1.6 billion in the fourth quarter. After deducting capital expenditure, free cash flow was an inflow of NOK 1.5 billion. The certain cash flow was driven by seasonal fluctuations in working capital and by inventory reductions over the course of the last year. For the full year, Atea's cash flow from operations was NOK 1.9 billion and free cash flow was NOK 1.6 billion, an increase of over NOK 800 million from last year. The improvement was based on higher cash earnings and a sharp reduction in working capital during the year.

At the end of Q4, Atea had a positive net cash position of NOK 961 million as defined by Atea's loan covenants. This corresponds to a net debt EBITDA ratio of negative 0.5. Atea's net debt balance is NOK 5.8 billion less than the maximum allowed by its loan covenants at the end of Q4 2023. The company has a strong balance sheet and significant additional debt capacity before its loan covenants would be reached.

That concludes the presentation of the fourth quarter financial results. I'll now hand the podium back over to Steinar to discuss the full year results and provide an update on market trends, which will impact Atea in the year ahead.

[Steinar Sonsteby, executive]

Thank you, Robert. As you see on this slide, if you look at the Atea results over a period of 5, 6 years, we keep to our long-term guiding of high single-digit revenue growth and a double growth of EBIT to the revenue. This is also what we see going forward. So nothing has changed on that side.

I also want to mention to all of you since the questions will come during the days ahead, that January has started really, really well or Q1 has started really, really well, I should say, we had a good January. And this is due to, of course, all the contracts, big contracts that we have won over the last 3 to 6 months that we also have posted among them, very much talked about SKI contract the 50.03 for server and storage, which we have delivered on in all of 2022, but almost nothing in 2023. But there are others. And also, as I mentioned in the start, that we have been able to start digging into the backlog.

I now want to try to explain better how a megatrend in the industry and society will affect us and our customers and vendors. And the question, of course, is how will AI introduce new opportunities to Atea. So let's see if we can give some clarity to the question. First of all, on the left side of this slide, you see the producers of technology, and you know who they are, but you don't know who the winner in the future will be, and I'm not trying to help you on that side.

But NVIDIA, Microsoft, Google, IBM and OpenAI have been companies that have been discussed openly and are doing really well so far. So are all the people helping these people producing their technology, especially the ecosystem around producing the GPUs for NVIDIA and the CPUs for Intel, AMD and others. These are all our partners. They're good partners, and we work close with all of them.

On the other side, you have our customers, the end users. All of them are desperately trying to figure out how will their world look in an AI era. Some of them are moving quickly to test. Some of them have already started developing or have even got to production on certain small or medium-sized solutions and some of them are struggling with where they should put their AI because the public cloud is difficult for them.

And in the middle, sits Atea and other resellers, system integrators, consulting companies and managed service providers. And the beauty for Atea is that no matter who succeeds from the left side and how fast the people on the right side moves, we are in the middle of it. Sometimes it'll be more software, sometimes it'll be more hardware and sometimes it'll be all of it or consulting. To us, the only thing that matters is that we are in the middle between the technology providers and the technology users. For many, we see right now, AI is actually automation on steroids, and that's where many of our customers have started.

Let's take a look at 5 individual different market opportunities for a company like Atea. And of course, this goes also for others that are similar to us. First, on the software and cloud side. It's very well known that Microsoft in November -- 1st of November actually, released or had a soft release I should say of CoPilot. There were a lot of restrictions around who could and what you could buy and how much you needed to commit to. We saw a very soft uptake in 2023 for CoPilot. And then in the middle of January of this year, so just weeks back Microsoft released CoPilot, we should say more or less without restrictions. And we have sold more CoPilot licenses for the last 2.5 weeks than we did for the first 2.5 months.

So obviously, the restrictions that were removed are helping. These software licenses are in the cloud, and that generates Azure consumption which is also something that we, of course, invoice the customers. We also see that some software developing companies, Atea being one of them, are using GitHub from Microsoft for their development. And we see a lot of interest in watsonx from IBM, especially from larger organization that has deeper and more complex needs when it comes to AI.

Then on the hardware side, it might for some of you, be a little strange that hardware is such a huge part of this play since cloud is always talked about. But as we have mentioned many, many times, we have a lot of customers, and I can mention defense in all countries, police in all countries, health, social security, tax and others who are reluctant to put their data in the public cloud. We have customers that now are ordering server clusters with deep use.

One example for a Swedish customer, I can't mention the name of, ordered 12 simple Intel servers with 96 GPUs from NVIDIA, at a total sum of NOK 60 million to only test their AI capabilities. So yes, we are selling the NVIDIA GPUs. We're selling them stand-alone, but mostly, we're selling them as part of server from one of the OEMs, Dell, Lenovo or HPE.

Another interesting opportunity that will come during 2024 is that these companies -- the PC companies will introduce what's called an AI-ready PC in the beginning of Q3 of 2024, so about 6 months from now. These are massive PCs with GPUs installed in them that are ready for local processing of AI capabilities.

Windows 10 end of life, another opportunity. So Windows 10 is the most used operating system in the history of the compute business. It goes end of life in 2025. That means 2024 is where the users need to decide what operating system and where they want to drive it. But no matter where they run the operating system, they need to run it on their PC. And in the Nordics, there are about 7 million PCs on the market being used today that cannot run Windows 11. Windows 11, by the way, is the beauty. It has more security, more functionality but it also have what I would call CoPilot lite embedded in itself. So we believe Windows 11 will be a hit during especially second half of 2024 and first half of 2025. So end of life Windows 10 will drive both software, services and hardware.

The consulting business, and there is a lot of consultants out there that need to be trained on one side on the AI and data readiness work that needs to be done with the customers, but also even more on the security because the bad guys are starting to use AI. We actually see a lot of attacks as we stand here where AI is being used to figure out how to intrude the customers and managed service providers.

I don't think that all of you in the financial market understands how difficult it is to be data ready for AI. Sh** in, sh** out is even more -- or is a better way of describing this than anything else that we have seen before.

Last, I just want to mention the Microsoft Cloud for Sovereignty which we launched with Microsoft some months ago, which gives public customers a comfort when they run and put their data in the public cloud. It's a technical but also legal solution that we have seen a lot of public customers, especially in Sweden, have accepted and are now testing and ready to go live. The revenue in this area is in front of us, not behind us and not for this quarter, I should say.

So when you do your math, and you only count licenses for CoPilot to see what this brings of opportunities to the market. I think you're missing the point. These are some customers that we are working with today, most of them have gone live in one way or another, but these are customers -- some customers, I should say, that we work with on more deeply developing AI capabilities than just installing a license from Microsoft.

Let me mention specifically 4 cases. They have similarities, but they're also different. The National Archives of Finland and I should say this goes for many archives around in the world are digitalizing physical information. It could be film, photos, but mostly, of course, a lot of text and books and documents. And the archive is using AI where Atea and the university have developed a solution where you could both speed up the process, but maybe even more important, categorize when it comes to importance and also in which way should be security cleared and so on and so on. And it has massively speeded up the way they can digitize the information.

Trygg Trafikk, or Norwegian Council for road safety are using AI to give the employees in the organization access very quickly to all the research paper, all the information, all the statistics about traffic accidents around the world and in Norway, so that they can very quickly answer questions when it come from politicians or people who build roads or research for the future on how we can make traffic even safer than we have today.

And Trafikverket Sweden or Swedish Transport Administration are using AI to predict the delay of train when a certain incident happens, I think a lot of us have seen that situation. The train is late or the train, sorry, is delayed, that's the only thing you know. Now they're using AI to look at certain delay episodes in the history, and they're feeding all this into the AI solution to predict very accurately how long will that delay actually be so that you can spend your time differently than standing and waiting for a train.

And lastly Atea itself, of course, is using AI. We have a lot of customer interfaces, but we also have a lot of information around in the company, as many of you might recognize. We have a pilot going right now as an example, where all the things we do on sustainability and ESG work, which is a lot, and I hope that you follow us on that side, available through an app for all employees to be able to answer questions when customers ask or to prepare materials to be put into offers for customers. So these are some examples on where customers are taking steps into AI and past the pure CoPilot functionality.

I wouldn't be me if I, on the other hand, didn't also caution you a little bit. And Roy Amara, a professor at Stanford that, by the way, died about 10 years ago, said many years ago when it came to the fact that we introduce new technology all the time, that humans have a tendency to overestimate the effect in the short term and underestimate it in the long term.

I think this is the words describing what Gartner Group calls the hype curve. And we are absolutely at the top of the hype curve right now. But what's interesting over the years is that digital solutions and equipment has a tendency to shorten the period from the hype to reality compared to what we saw with physical technology, 10, 15, 20 and 50 years ago.

There is a couple of things, though, that we need to think about when we look at the opportunity and how quickly it will materialize. One is, as I've mentioned a couple of times already, the data readiness. Most customers we talk to are not -- do not have a high data readiness when it comes to AI. So they need to start on a smaller data set, that will expand as we form foundation model or data models that span maybe even past our own data and into more public data. How quickly this goes will be interesting to see, are we willing to share data with our customers, our vendors and even society in general.

The second thing that will control the speed here is how much money are we willing to increase the IT budget with or look at when it comes to pure investments to take advantage of AI. And of course, this will very, very much cross the customer sets. But if we move money from one place on the IT budget to another, that will benefit AI, but it won't grow the market. So this will be interesting to follow in the years to come.

As I said in the beginning, we believe the period from introduction to full-scale use will be quicker than ever when it comes to AI. I hope that gave you a little bit of insight, both on what we think about AI in general, but also the opportunities for Atea.

So let me finish by looking at the year in total. The gross sales came in at about NOK 52 billion and EBIT at NOK 1.244 billion, 11% growth in gross profit and 7.6% growth in EBIT if we exclude the sale of Mobil in 2022. The cash flow came in at NOK 1.9 billion, up almost NOK 900 million from 2022. It was a very good year, and we will prove to you that Q4 was just a bump in the road.

As an anecdote and a Norwegian, I must say, it was interesting to see Telenor's results yesterday and see that we put forward results today that are actually similar to Telenor, who would have thought that 10 years ago. Of course, the good results give us an opportunity to share with the shareholders that have been with us and will be with us in 2 installments in 2024 based on the 2023 net financial results of NOK 7. And yes, it will be as a repayment paid in cash. So there you have it, a very good year, and we are predicting and have seen a good start to 2024.

With that, we will go to Q&A. And we are ready to answer all your questions.

[Unknown Executive]

Thank you very much Steinar, Robert, we have multiple questions here today. First one, hardware revenue was behind in Q4 2022 as you've explained. Can you give a bit more flavor to this?

[Steinar Sonsteby, executive]

So there are actually multiple reasons for this, so a good question to try to clear up a little bit. So first of all, as Robert said, we are up against the Q4 in 2022 where hardware sales were out of this world. It was way above what we had expected a year ago. So a very tough comparison, where we both delivered from the backlog massively, but also had very high sales compared to a normal Q4.

When you look at what we delivered this year compared to last year, we see that networking and server and storage is most down. And on the server and storage side, we see that most of that actually is due to the SKI 50.03 contract that we delivered on in Q4 2022 but did not deliver on in Q4 2023. And I mentioned in the beginning, we're a little disappointed that we didn't get more of our own backlog that were actually there and were actually sold out in the end of Q4. There are probably multiple reasons for this.

One is that I think that some of the public customers actually run out of money because of inflation and that they didn't get compensated fully in all the 7 countries we're in. I know in Norway, they try to compensate. I don't know how much and where it was put into the different pockets of the public customers. Maybe also, we brought down the inventory a bit too sharp in Q4. Of course, that shows up in a very good cash flow, but I have a -- we haven't really investigated well enough yet but I have a hunch here that there were some orders that were not complete because we were missing something.

But overall, the sales are there, the contracts are there. We did not lose any market share. And as I said, in January, we see that we are back on track.

[Unknown Executive]

Next question here. Cost seems to be higher than expected. Can you explain how you've been thinking? And how should we see costs going forward?

[Steinar Sonsteby, executive]

Yes. So if we look at the fact, the number of employees in -- or during 2023 increased by about 1%. When you look at the total cost including that increase in constant currency, it was about 3.9%. So that is the fact. It's divided a little different between the countries, but for the whole group, that is the fact. Is 3.9% too high? Well, compared to the inflation and the general cost in the society, I believe we did pretty well.

So I think you need to look at the cost cycle of Atea in a bit longer perspective. And when we look at that, we believe that there are some opportunity to increase the efficiency, meaning lower the sales per sold dollar during 2024. And we certainly have started that work, and we'll look at that going forward. So you can expect a slower cost development going forward.

[Unknown Executive]

Multiple questions on cash flow here. So I'm going to try and consolidate them here. Cash flow was very good. What should we read into this?

[Robert Giori, executive]

Cash flow. Reducing our working capital has been a big focus for Atea during 2023. Our working capital levels became elevated in late 2021 and early 2022 due to supply chain constraints, which led us to hold off our stock in order to just ensure that we could make customer deliveries.

From the middle of 2022 and then going throughout 2023, we've been bringing down our inventory. So that's freed up a lot of working capital for Atea during the course of 2023. And then with interest rates coming up, the cost of holding cash on your balance sheet in inventory and receivables and so forth, goes up. I mean this is something which we -- it really puts extra pressure on the company to focus on cash conversion to make sure that we're not bringing down debt, make sure that we're not having cash tied in the balance sheet if it's unproductive.

And so that's also been an area that we've pulled together. Teams, we've really built a whole new organization, new framework of looking at working capital to ensure that we get those metrics as well as we can bring down the working capital as much as we can. So we're really happy with how that's turned out for us. Q4 is, of course, an exceptional quarter in working capital reduction, but that's a seasonal effect that we see every year that we have a Lot of the cash flow and a lot of the working capital reduction takes place in Q4. But over the course of the full year, we're really happy with the reduction of working capital that's taken place, reduction of inventory that's taken place and the efficiency of our other working capital metrics.

[Unknown Executive]

Somewhat related, towards you Steinar. You have a massive liquidity reserve now. What do you need that for? And should we expect a more aggressive buyback program or acquisitions? Can you comment on that, please?

[Steinar Sonsteby, executive]

Yes. So first of all, when it comes to acquisitions, we are always looking for acquisitions. And I think we've done a couple more than what people think about over the last 5 years, even though we haven't been as active as we were 10, 15 years ago.

Over the last couple of years, we have found that pricing haven't really been favorable. So meaning that the seller hasn't been on the level that the buyers have been, and I don't think that is only us doing that judgment. But we are absolutely looking for acquisitions. When it comes to buybacks, that is a decision that the Board has to be involved in. We've done some of it, but I don't think that you should expect that we will do the type of American large buybacks and strike the shares. So I think dividend is more where we are leaning at.

[Unknown Executive]

More of a market-related question here. Do you see the main demand difference between the public sector and the private sector? And how has that development been in each?

[Steinar Sonsteby, executive]

Yes. So if there is one thing we have learned over the last 4 years since the pandemic hit us and everything that has happened after that is that it's become more difficult to predict the future. And I think that goes for everybody in all walks of life. But when you look at the last year, so 2023, we have seen private being slower than public. Absolutely. We've seen the smaller the private company the slower. So all the way to very small companies that have been really holding to the dollars.

We now see private companies starting to invest. And so our prediction is that this will change a little bit during 2024 that private -- and especially large or enterprise private will increase substantially their investments. And it has to do with cycles. It has to do with some of the technologies I discussed earlier. But it also has to do with the fact that the competitive landscape is becoming digital, I should say, even more than what we've seen.

So the public is there. We have higher expectations, I should say, to Sweden and Finland when it comes to the NATO investments that started for the Finnish investments in 2023, but maybe a little softer than what we thought. So there are absolutely drivers in the public, but we think it'll in percentage, the private will eat back some of the advantage that the public did in 2023. And I should say, outside the NATO comments, we don't see many big differences between the countries.

[Unknown Executive]

So you cite more favorable market conditions in 2024. But at the same time, you highlight high comparables in the first half of '24. Does this mean you expect an overall good 2024 implying above normalized growth rates for the year 2024?

[Steinar Sonsteby, executive]

So the 2 very difficult quarters when it looks like -- look at the comparison was Q4 2022 compared to Q4 2023 that we just discussed, and it was Q1 2023 compared to the Q1 we're in now. So our expectations for this quarter is that we will grow revenue and we will grow EBIT, so that is very firm in our outlook.

When it comes to the rest of 2023, it was -- it's actually a softer comparison. So we believe growth will increase as we go through Q2, Q3 and Q4. But we absolutely believe that we'll have growth and a positive growth in EBIT also in Q1.

[Unknown Executive]

Can you help us understand a little bit more about the comment you made, difficulty of delivering to customers during the quarter being Q4? How much business slipped to Q1, if you can quantify that?

[Steinar Sonsteby, executive]

Yes. So we'll be careful in quantifying, there is no math to calculate that. But there are several hundred millions that were stuck in the backlog that we had expected when we went into December would have been delivered, and that would have brought us back to an EBIT in Q4 in 2023 comparable to 2022. The reason for this, we saw less eagerness from the public customers to take partially delivers. So meaning when we don't have a full order stack ready for them, mostly over the last 30, 40 years, the customer said, "Okay, deliver and invoice what you have". We saw a less appetite for that in Q4. And we believe that goes to the fact that they had constraints on their budget because of the inflation, so they already used their dollars in 2023 earlier.

But there were also some orders where if we have had things in the warehouse, which we have brought down sharply in Q4 and in 2023 in all that we could have delivered where the customer actually wanted it if we had been able to. So several reasons there. All in all though, we delivered NOK 14.4 billion, and we should have been able to tackle this. So I'm not trying to make any excuses I'm trying to explain.

[Unknown Executive]

This question is a comment. Steinar, you said that in Q1, it has started really, really well, referring to January. But in the report it states that during the first quarter of 2024, Atea expect slower revenue development year-over-year from a very strong comparable start Q1 '23. How should we interpret that kind of comment.

[Steinar Sonsteby, executive]

Yes. So we're trying to explain both in the report in words and verbally in this presentation, that Q1 was an exceptional quarter. But as I'm saying, we believe we can break that -- those numbers in Q1 of this year. But it will not be high single-digit growth, and it will not be a double-digit growth in EBIT. That's not what we predict.

What I'm saying is that we will deliver a better Q1 in 2024 than in Q1 2023. And then the result -- or the comparison will ease and our performance compared to the year before will get better and better during the year, and it will end up with a -- we predict a very good 2024.

[Unknown Executive]

In some ways, you might have answered this question, but it comes multiple times. Do you expect growth year-over-year on EBIT for 2024?

[Steinar Sonsteby, executive]

Absolutely. We expect high single-digit growth on revenue and a double of that in EBIT in 2024.

[Unknown Executive]

A separate question here in relation to Denmark. How big was the effect of the paused SKI agreement 50.03 contract in the quarter?

[Steinar Sonsteby, executive]

Approximately NOK 200 million in revenue. And by the way, I should say we went live yesterday on delivering on that contract, which is about 2 weeks earlier than we expected when we sent the message to the stock markets. I should have mentioned that earlier. I'm sorry about that. So we got live yesterday, which will help us in Q1.

[Unknown Executive]

I've got couple of questions here. Just I think circling back on something you said, Atea expects lower revenue development year-over-year on Q1 versus Q1 2023. Does this mean that we'll have a lower gross profit year-over-year in Q1 2024?

[Steinar Sonsteby, executive]

No. Robert commented on this very well in his part of the presentation. If you go back to those massive quarters, Q4 2022, Q1 2023, we were negatively influenced on gross margin because of all the complexity and deliveries, currency and price increases. So we believe that gross margin will go up, and that's why we will have a positive EBIT also compare quarter-over-quarter in Q1 2024 compared to Q1 2023.

[Unknown Executive]

And our final question, could be perfect timing. You seem to be very optimistic about 2024. Can you please explain this more?

[Steinar Sonsteby, executive]

Yes. I think I can use that as a summary of everything we have discussed today. So we understand that we were a little bit behind in Q4 2023, and that is not due to loss of contract, loss of market share, loss of position in any way. It's not because competition in the market has changed. And so -- and we have won all the contracts we've gone after. And this gives us a very good position. We came into 2023 with a little bit higher backlog than what we expected.

And as I've tried to explain today, AI will start to get real in 2024. And if you combine that with the Windows 10 end of life early 2025, we believe that we have the opportunity. We believe we have the platform and the competitiveness to make that into a very good 2024. So yes, we are expecting a good year.

Okay. Thank you for following. That concludes the presentation of the Q4 and full year 2023 results here from Oslo for Atea. Thank you for participating.