Bittium Oyj (BITTI.HE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this webcast on Bittium's Half Year Financial Results. My name is Karoliina Malmi, and I'm the Head of Communications and Sustainability at Bittium. And with me here today is our CEO, Petri Toljamo, who has started leading this company in the beginning of April this year. But before I hand over to you, Petri, I'd like to remind you all, we have reserved some time at the end of the presentation for Q&A. So please use the Q&A box on your screen to write us questions, and we will answer them at the end. But now over to you, Petri.

Thank you, Karoliina. Good morning, and thank you for joining us today. So my name is Petri Toljamo. I started at 1st of April as the CEO of Bittium. I'm excited about my new role as the CEO. I was 6 years with the Board of the Directors of Bittium, and I see a lot of opportunities, especially on the defense side for Bittium to grow. And based on my background, I believe I'm in a good position to help Bittium to take ourselves to the next level. So first, a few forward-looking statements. So some statements made in this material are relating to the future circumstances and by their nature, those forward-looking statements involve risk and uncertainty, and therefore, Bittium corporation disclaims all obligations to update such forward-looking statements. Then we will call the financial results for the first half year. So our net sales and order book grew significantly. So the second quarter net sales grew by 15.6% year-on-year, and we were at EUR 22.9 million. So then looking for the business segments, what we have, so the Defense & Security net sales grew by 19.4% and order intake grew significantly to EUR 20 million. Medical business segment, net sales grew by 4.5% and order intake grew to of EUR 4.6 million. Engineering Services net sales grew by 6.3% and order intake grew significantly to EUR 6 million, which basically doubled the order intake number. To summarize the first half, so net sales grew by 11.3% year-on-year and was EUR 42.2 million. Our order book increased by 25% (sic) [ 27.5% ] year-on-year and is now at 43.1% (sic) [ EUR 43.1 million ] which has put us in a very good position to have the strong order book situation. Second quarter operating result was EUR 1.1 million, representing 4.9% of the net sales. And what -- which impacted then the profitability level was that we have continued to make certain investments for the growth, which made an impact on the profitability level. And also, we announced earlier that we had a one-time cost related to the restructuring of the Medical business segments, which lead to EUR 2 million annual cost savings, EUR 2 million annual cost savings, and that impacted by EUR 0.9 million , our second quarter operating results. To summarize the first half, the operating results was EUR 1.5 million, representing 3.6% of the net sales. Then going to financial revenue, starting with this quarterly financial developments. So we are presenting here the 2 years -- sorry, for 3 years quarterly developments and -- so second quarter, the total was EUR 22.9 million, Services, EUR 7.8 million, while the Products were EUR 15.1 million. And which is notable to here, if we look at the last year, the second quarter '24, so the Product business side has been growing significantly here. On the right there, operating results. And as we see, the trend is a positive for '23, '24. We spent time on the turnaround on the profitability side, and that was made well. And now it's the time for the growth. And so the second quarter, so EUR 1.1 million, representing 4.9% of the revenue. The same comparison but now on the half year, so 11.3% year-on-year. In total, EUR 42.2 million, Services, EUR 16.3 million and the Product, EUR 25.9 million. And again, if we compare that to the first half, what we had the situation last year, the notable here is the growth, especially on the Product side. And on the right, you are able to see them on the operating results curve as well. R&D investments decreased year-on-year, so EUR 7.7 million, representing 18.2% of the net sales, while we had last year in the comparable time EUR 7.9 million, EUR 2.2 million was capitalized, which is less than we had in the last year, EUR 3.9 million. Also, the depreciation decreased to EUR 1.8 million, while we had EUR 2.8 million last year. So the total R&D cost and the impact on the P&L was EUR 7.3 million, while last year, it was EUR 6.9 million. And the investments main focus on that is especially on the tactical communications and the radius for the defense market, but we are also making significant investments also on the medical technologies and the production and the software. Looking for the cash flow. I think the trend has been positive on the cash flow. So first, the net profit with adjustment on the first half EUR 4.2 million, change in the net working capital, EUR 5.2 million interest and taxes, minus EUR 0.1 million. Net cash from operating activities, EUR 9.2 million, which is significantly higher than the last year. The net cash from investing activities, minus EUR 5.2 million. Net cash from financing activities, minus EUR 4 million, which included the dividend payment of the EUR 3.5 million and which changed the net change in cash and cash equivalents to be the 0 for the first half '25. Assets and liabilities. So first, looking at the assets, the noncurrent assets, EUR 85 million, which is included the property, plant and equipment, EUR 19 million. Capitalized development cost EUR 50.8 million and other assets, EUR 15.1 million. On the current asset side, the inventory was EUR 24.7 million. Trade and other receivables, EUR 28.9 million. And cash and liquid assets, EUR 21.7 million. Then on the equity and the liability side, equity EUR 110.7 million. Liabilities, EUR 49.7 million, which included the trade and other payables, EUR 24 million, interest-bearing debt, EUR 20.8 million, other liabilities, EUR 4.9 million. So our equity ratio remained at excellent level being the 70.7%. Basically, we are a net debt-free company at the moment and our capability to finance the operations is an excellent level. Then we are going to look at the business segments, starting first on the Defense & Security business segment. So last year, Defense & Security business had an excellent year. We did grow. Now even if we have tough comparison points from the last year. On the second quarter, we grew 22.2% year-on-year and on the half, 19.4% year-on-year. And also the backlog, like I mentioned, it grew significantly. So looking at the market development on the Defense & Security business side, the first, our important customer, the Finnish Defense Forces. So we ended with the partnership agreement over the last year with them, we have been ramping up that one. We received new TAC WIN and Tough Comnode orders on the second quarter, that was more than EUR 7 million. That was a big deal for us. Also, we did continue the deliveries for the SDR tactical radios. Also, we did demonstrate the hybrid network where the tactical network is communicating with the commercial 5G network, creating the 5G bubble altogether with the Finnish Defense Forces and Nokia. On the international customer side, we did continue to receive orders from multiple countries, being Croatia, Estonia and Austria. Also, we have received new customers or been able to acquire new customers for the Tough SDR radios in Europe. And also, which was announced that there's negotiation ongoing now with the Indra, which is 1 of the largest technology company in Spain, which is operating in the more than 100 countries. So we are negotiating them with regarding the SDR radio as well as the production technology deal with them. Also, we have received new orders for Secure Call, SafeMove and Tough Mobile 2. Then on the Medical business segment, so second quarter, 4.5% year-on-year and first half, minus 2.6% year-on-year. Net sales increased, but the operating result, it would have been positive, but due this onetime cost, EUR 0.9 million, the results went to negative side, which was significant on the Medical business segment on the second quarter is that we're able to close the deal with our long-term partner and the customer, Boston Scientific for devices for the next 3 years, and that also included the joint development, a new product for the U.S. market. So ECG device sales outside of the U.S. remain moderate due to the more fragmented markets, which is typically in Europe. Respiro sales was lower than the estimated and we have activities ongoing, and we will update more that on our CMD, which is happening in September. And Niina Huikuri started as the head of the Medical business segment, bringing a lot of background, understanding and knowledge for this ECG market. Engineering Services business segment, it has a pretty challenging market situation, but we managed to grow 8.5% on the second quarter and 6.3% in the first half. The ongoing customer projects are proceeding well, and we have 1 new extension for the projects. Also, the order intake increased significantly year-on-year in the second quarter, like I mentioned earlier. There were several defense sector service project we have won. This was a new thing we defined for the growth strategy that we want to also focus on the defense sector in our Engineering Services side and that has started well. Also, we have won new customers from the manufacturing industry as well. And we announced also the cooperation with the TerreStar regarding the creation of this new 5G NTN, Non-Terrestrial-Networks. Supporting various Defense & Security business segment project continued through the first half and the challenging market situation continues. There are some past budget constraints for the new R&D project. But I would say it's an excellent start still for the year, which helps a lot that we are dealing with a lot of international clients, not just with the Finnish customers only. Then as we see how we summarize the trends. So we believe that the mega trends are supporting the growth, especially in the defense and security side. And there's some budgets been increased for the defense at the moment. We are seeing more and more activities with respect to kind of the new opportunities in the defense market, the size and the amount of the new opportunities has increased, and this is something we are working very intensively at the moment to capture the growth for the Bittium. Also, this ECG and Home Sleep Apnea testing device market is growing, and we are now focusing on the win new customers, building the new market channels and optimizing the go-to-market at the moment. Also, like I mentioned in the Engineering Services, despite of the challenging market situation, we believe it's in the good track this year, which is important for us, especially on the defense side. We have to make -- we continue to make investments to -- for the production scalability which is important to be able to deliver higher volumes in the future to meet the kind of the demands in the Defense segment. We have also strengthened the organization, bringing new leaders and we have excellent and committed highly skilled people, which is making -- supporting our growth [ strategy ]. We will have the CMD, 23rd September, when we will provide the strategy updates for -- during this for. And the outlook, we are going to repeat same outlook given the outlook, so we expect the net sales this year to be EUR 95 million to EUR 105 million, operating results to be in the range of EUR 10 million to EUR 13 million. And finally, we have the investor calendar to welcome all of you to join the CMD. We look forward to providing more updates on the -- on our long-term targets and also the strategies for the corporation and the business segments. And third quarter results will be published on the 24th of October '25. And I believe that's now time for the Q&A.

Yes. Thank you, Petri, very much. I have quite a bunch of questions here. So let's start. And let's start with Defense & Security and our latest news about cooperation -- possible cooperation with Indra Group. So what's behind this cooperation and this licensing programs, what exactly do they need from Bittium?

So in overall, I think this Indra and the Spain opportunity is very interesting for us. It looks like that this Spain wants that there's a lot of domestic kind of content in -- while they are building this national radio. Bittium is in excellent position because 1 of those rail companies, which actually have the kind of software-defined radio, both commercially and technically ready and available. So we are in the discussion with them to provide both our technology of our product as well as the manufacturing technology, which would help them to manufacture then the radios in the Spanish market. And the negotiations are in a very early phase. We -- our discussions are continuing in a very good manner. And I believe that's excellent and a very sizable opportunity for Bittium in the future.

Thank you. That sounds good. Is there anyhow you can comment on the Spain's trying to get rid of Israelian radios or cooperation with them. Can you comment on that?

So this is interesting, and this is something we have also tried to figure out what is exactly the official statement at the moment, looks like that there's discussions in the media and the media statements that Spain is not going to use the Israelian, our competitors at all. But this is something we have not been able to confirm. But how I see is that because Bittium with Indra is in an excellent position in Spain to negotiate about this future Spanish radio opportunity. I believe there might be some truth behind this market news. But like that, we have not been able to confirm it.

Okay. Good. Is there anything you can comment on the size of the potential that lies behind this cooperation?

Like I said, we are in the very early phase of the discussions, and we don't have yet any numbers, but if we compare to the opportunity for Bittium and both Indra, it's very sizable for Bittium, especially so.

Okay. Thank you. So let's move a bit north and go to our cooperation with BAE, which we signed in summer -- last summer 2024. Is there anything you can tell about the status of the cooperation at the moment? Have you been -- have we been able to participate in tenders together with BAE?

So this -- we were expecting to join this industry, this RFP round in the tender in the U.K. but this has been postponed, not because of us or because our product is more the political reasons, and this is something that will work together with the BAE, and we are ready to then to kind of a product provides the updates and participate the tender when it comes -- becomes reality. But as you have seen today, we announced that we are launching the new kind of office and there is a new leader in the U.K. So we are taking this U.K. seriously. We are believing there's significant opportunities. And that's why we are investing to have a stronger presence in the U.K.

Yes. How about Austria? We have provided our core backbone network there, related products. How about the radios. Is there any tender ongoing or...

So in overall, if I look at the Austria and the customer, the customer -- the relationship with the customer has been excellent for the long time. We have been able to deliver the core network for a long time, then deliveries are ongoing. And at this stage, I'm not able to comment about the radius, but what we and I personally expect that our business with the Austrian customer is going to grow.

Okay. Good. How many countries has Bittium made pilot deliveries and how big opportunities these are? Pilot deliveries, meaning that the first -- very initial first phase before tendering and -- yes.

Yes. So we have not published the exact amount of the countries, and this is not -- because of us, many of our customers, they are kind of government and this military sites, and they are not letting us to announce the kind of the discussions or the deals with them. Therefore, we have said that -- of course, we have this Spain discussion ongoing. We have also announced that we have delivered the 1 European country or the special forces. This is something. Then we have announced our public references. But beyond that, there are several countries in Europe and Asia that we have been able to deliver the pilots. And we look forward to grow the business. And like I said earlier, Bittium radios are both commercially and technical already, and we are in excellent position now to capture the wave of this modernization and digitalization of this radio and tactical communication systems.

Yes. That's great. But then about the outlook. Are you able to open the drivers behind for different business segments. So what needs to happen in order to be able to deliver what is it today?

So typically, the second half is stronger for Bittium than the first half. And I think we have a pretty solid plan for the second half. Of course, the defense being the most important there and the largest one, but I was referencing earlier that we have excellent order book situation now. I would say that we have almost all needed orders in place to deliver the results for the Defense & Security business for this year. So the -- I think that there's a solid possibility to deliver the expected outlook.

Good. Thank you. Then about profitability. After significant progress of profitability during the last 2 years, it appears that the profitability is yet again, taking a step or 2 backwards due to growth investments and recalibration of Medical. Can Bittium still grow fast and scale profitable up at the same time? Or is this eating every goal profitability?

So we don't want to just grow the top line. So it's also -- we have to be able to grow profitably. And that's true that we have made certain investments after this turnaround round. So when we made these reductions '23 and '24, so we reduced a lot of the costs, but we knew that once we are going forward for the growth path, there are certain investments we need to add and do for the -- especially going for the international market, and that's typically what happens in the product business that you have to invest first. But of course, we are very careful in making all the investment decisions, and of course, we want to grow profitability. And this Medical segment, we actually reduced EUR 2 million of the annual cost. And this is an example that we are not -- doesn't just want to grow the top line.

Okay. Thank you. That's actually -- there is 1 more question about the BAE and the cooperation, but you answered this already. I think this question came at the same time or something. But yes, that's all for the questions today. Thank you very much.

Thank you, everyone.

Thank you.