Bittium Oyj (BITTI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this webcast on Bittium's Financial Statements 2025. My name is Karoliina Malmi, I'm Head of Investor Relations, Marketing and Sustainability at Bittium. And with me here today are our CEO, Petri Toljamo; and CFO, Petri Hiljanen. A few forward-looking statements quickly. I just mentioned they -- by their nature, they involve risk and uncertainty and may differ from actual results. And about the agenda. Quickly, we start with some highlights of 2025. Then CFO will walk you through our numbers from last year. And then we continue with business updates. And finally, outlook for this year and time for Q&A at the end. So, however, you are able to place questions at any time by clicking the button on your screen, and we will address them at the end. But without further ado, I will let our CEO, Petri Toljamo to start.

Thank you, Karoliina. So I'll start with the highlights of 2025. Shortly, I think we had a pretty good year. So first, I think that we are able to say that on CMD, September last year, we defined a new growth strategy where the theme is that accelerate international growth. I think this is proceeding as planned. Second, our order intake grew to EUR 153 million, around roughly from EUR 100 million from previous year and as well as the order backlog grew to around EUR 78 million from the EUR 45 million. And this is very significant and sizable amount of the orders we managed to secure on the last year. Then the number three, I would say that Bittium's market position in defense market strengthened significantly. We have been able to make headway on the international markets. And I think that we have a very relevant position, thanks to our advanced leadership on the technology side. And fourth, if we summarize the year, net sales grew 40% year-on-year while the operating percent was -- profit was 16.3%, and EBITDA was EUR 32 million (sic) [ EUR 32.4 million ] which reflects a 27.2% of the net sales. Then, I'll hand over to our CFO, Petri Hiljanen. He will go through in the detail, the financial part, and I'll get back to [indiscernible].

Thank you, Petri. So let's first walk through the Q4 financials, the highlights there. So our Q4, we delivered record high sales. We reached -- the sales reached EUR 54 million, and it grew about 63% year-on-year. And this is now -- this year is clearly a breakthrough in Bittium -- for Bittium in international markets. So we got good new customers, open up new markets. So this is a good result for us in that sense. Also, we need to keep in mind that the Q4, the comparison period '24 was already quite strong. So relatively, the strengthening has been quite phenomenal here for '25. Growth was fueled by defense product sales and at the same time, Medical and Engineering Services remained about the same level as last year. As you can see from the graph there, so at least for the sales, it's typical for us that the quarterly fluctuations are quite substantial, and this is also the case for '25. Our operating profit reached EUR 15.4 million. There's an increase of EUR 9.4 million from last year, quarter 4 '24. And the operating margin was thus 28.6%. And there, as mentioned earlier, so high volumes and favorable product mix contributed to this increase in profitability. EBITDA reached EUR 23 million and the last year, it was EUR 8.6 million. So it's a hefty increase there for -- at EBITDA level as well. Full year '25, as Petri mentioned, so it was a 40% growth in top line sales. It reached EUR 119 million (sic) [ EUR 119.3 million ]. And as I said earlier, the growth was driven by product sales in the Defense & Security segment. Engineering and Medical, they remained pretty much at the same level as '24. Full year operating profit, a key measurable for our business was EUR 19.4 million at the margin of 16.3%. And then one should keep in mind that there's also close to EUR 1 million of onetime costs included in the operating profit. This sales, the structure of sales, as we can see, it's heavily driven by the product sales, which is very much in line with our long-term strategy. Full year EBITDA reached EUR 32.4 million, and it's about 27% of our net sales. Some words about the R&D investments. So we continue to invest in the core technologies. However, the relative percentage fell a bit from the historical numbers and also it's a little bit less than the strategic target. It was 12.9%, but it's explained by the high sales in '25. But anyway, so we are committed to the strategic targets to develop our products and offering. This -- related to the investments, there's also some higher depreciations that we took on the Defense & Security business, products and historical development cost, and that's also explaining a bit on the increase of the R&D expenditure. Some key items, takeaways from the cash flow. Cash flow was negative for full year. It was a little bit less than EUR 1 million negative. Last year, '24 was exceptionally high. There were onetime items related to historical projects. Now as we go forward with the growth, our growth sales grew so heavily, and it also drove the accounts receivable to quite high level, which, of course, then increases net working capital decreases our cash flow. We also took measures to secure inventories for future deliveries. So those are the primary reasons for higher net working capital. Some words about balance sheet. So Bittium's balance sheet is very strong. Our equity ratio is 71% and then it's -- and also, we are net debt free. So those are the key items that are providing us fuel for future growth initiatives. Then again, from business and operations side, there's definitely items related to net working capital that are -- have been increasing. But then again, they are supporting our short-term business activities as we go forward towards '26. All right. So I will hand over now to Petri.

Thank you, Petri. So after this final sale part, I cover then the business segments, starting with the Defense & Security. So on this business -- on Defense and Security business side, I think this overall, we grew last year 45% year-on-year. Now this year, we managed to grow 65.8% year-on-year. So if we look at this overall macroeconomic side, I think these uncertainties and changes in global political environment continued. And what we are, however, seeing now is that after the Ukraine war, there was a kind of peak to purchase the guns and arms and then, of course, the vehicles on infrastructure. Now we are clearly seeing that these investments, defense funds are being kind of focused more and more in the future in the modernization of the military communication systems. And like mentioned in the highlights, our market position has strengthened through the technological leadership in the military communication. So '25 for the Defense & Security was the record year for the order intake, EUR 121.8 million and order backlog of EUR 70.9 million. We received new orders from the Finnish Defense Forces and Austrian, Croatian and other customers as well. We signed also a frame agreement with Finnish and Swedish Defense Forces. And also we signed a sizable licensing deal with Indra for our Tough SDR radar technologies. The quarterly development on the fourth quarter, we grew Defense segment -- Defense & Security segment 90% year-on-year, and this is a very high number. And even if we had a tough compare on the fourth quarter '24. So let's look in this -- our progress on the international market. So with defense -- Finnish Defense Forces, we have been collaborating since 1989, and we are continuously receiving orders from them. If you look at the other countries as well, so 2016, we started collaboration with Estonia, 2019, Austria, and we received a large order from Austria in the fourth quarter last year. So it basically proves that this is not just a 1- or 2-, 3-year type of the project. Actually, it will last pretty long while we are continuing to equip that specific country in question. Croatia '22. '24 we signed a frame agreement with BAE Systems, and we opened last year office in London. '24, we also signed 2 frame agreements with Lockheed Martin. And like mentioned, '25, we signed frame agreement with the Swedish Armed Forces. However, there are no POs yet, but naturally, we will expect those to arrive at some point. Then there's this [ mystery ] country from the Europe, which we have not been able to disclose. We signed that 2025 for the special forces. And now in December, we signed the licensing agreement with Indra Group for the Bittium's SDR technology. Just as a recap for this Indra deal. So we signed in December licensing agreement with Indra. And based on the current forecast, the total value of the agreement is estimated to be over EUR 120 million. Out of that, EUR 50 million first purchase order was received last year, and that caused a positive effect on our final sales outlook for '25. In January this year, we received a second purchase order valued at EUR 20 million, and this is related to technology and production transfer projects. And now with this licensing, we will help Indra to develop and manufacture different kind of handheld vehicular and manpack radios with the main focus on Spain with the potential to expand that to selected countries as well. The key point here, however, is that Bittium will continue developing and supplying its own tactical communication products and radios for its customers globally. A few words about the medical. So at CMD last year, part of the strategic change, we decided to focus our -- focus on the medical side. We had 4 product lines. Now we are going to focus on 2, namely cardiac and sleep. And this is what we have been now strengthening after this change, and we have clarified the roles and responsibilities within the organization. And if you look at the numbers, revenue remained flat year-on-year. But the overall operating results for '25 was positive when excluding the nonrecurring items we had on the second quarter. And since the second quarter -- the second half was positive on the operating result point of view. Then with our key customer, Boston Scientific from the U.S., we continued collaboration, and we signed a new agreement in June with them for the next 3 years period. Also this cardiac sites, sales outside of the U.S. remained moderate during the fragmented market. With the sleep apnea product family, we have been working with the multiple pilots in different countries, and the focus is now to find and sign agreements with the strategic partners for sales. On the fourth quarter, Medical business grew 4.3%. Then on the Engineering Service, in general, I think that ongoing customer projects are proceeding well. However, many customers are postponing their product development investments due to uncertainties in the market. What is positive for us is that roughly half of our revenue comes up roads outside of Finland. That has helped us to overcome maybe the kind of challenges, especially in the Finland. In 2025, from the numbers point of view, we were flat 0.5% year-on-year. We have said that the profitability was affected by the investments what we are doing as we are renewing the focus based on the latest strategic change towards embedded AI and defense market. And in order to prove that point, '24, '25 gross margin levels were at the same level. So this is what we have been investing kind of purposely to make sure that we are able to shift the focus more embedded AI and defense market. Our cooperation with Terrestar continued well for the satellite terminal concept. And also with this embedded AI, we launched the cooperation with the Qualcomm company called Edge Impulse. And also as Bittium made an investment to Marshall I, which is serving also the other business segments as well. They are also proceeding well with the Engineering Services as well. And now the main focus for this business is to grow the Defense business market, and they are in the funnel, multiple opportunities we are trying to close at the moment. Let's then look at the shares and the shareholders. Share price last year grew 371% year-on-year. This is really remarkable. Number of the shareholders has also increased. We have now totaled 27,895 shareholders. Fund ownership is 6.9%. And by the end of the last year, foreign owners was 6.7%. But what we can basically now say we are at the 10% level. So this seems to be clearly growing. Just to recap what we set for the strategy, really the focus main theme is to accelerate international growth. We have divided 4 pillars to support the growth strategy. First is accelerating international sales and developing strategic partnerships for growth, and this is applying for all our business segments. Second, we really want to be the technological forerunner to seek competitive advantage from the technology. And we have said that we are going to strengthen the software AI capabilities and our investments to the MarshallAI is one proof point there. Third, we plan to expand to new markets and the verticals, especially in the Defense & Security, exploring also the inorganic growth opportunities. And this is where we have been pretty active. Nothing to be announced yet at this point. Fourth, we want to make sure when we are scaling our operations and our tools and systems, we don't want to double the cost while we are growing. That's why we have to really transform ourselves to data-driven scalable product operational mode, and this is also proceeding well. To go for the outlook for '26. So we estimate that the net sales in '26 will be from EUR 140 million to EUR 155 million, while we were at EUR 119.3 million in '25. Then on the operating profit side, we estimate our operating profit in '26 will be from EUR 26 million to EUR 32 million, while in '25, we were at 19.4% (sic) [ EUR 19.4 million ]. What we have also said here that the operating results will be affected by the depreciation related to the license income from -- on the Defense & Security business side, which will be received in '26. Also, we are saying that the net sales and operating profits are expected to be weighted towards the second half of '26, like it has been in the previous years as well. Also, the timing of net sales and operating profit between quarters may significantly -- and just to remind the long-term financial targets on September, we revised and upgraded our long-term financial targets. So on the revenue growth side, we plan to grow from 20% to 30%. Of course, if you look at '25, we managed to grow 14.1%, exceeding our long-term financial targets. Operating profit level, we have said that our long-term target is to be at from 10% to 20%, and we were within that frame in '25, receiving 16.3%. And this update is driven by the strong growth in defense markets, which has accelerated the development of the Bittium's Defense & Security business. Then let's look at the investor calendar. So what we are doing this year, we will have the AGM in Helsinki on 22nd of April. Also, the first quarter results will be published on the 29th of April, second quarter and first half on the 7th of August and third quarter 29th of October. Just to summarize where Bittium is now, if you look what we have been able to achieve and what is our position in the market. First, we are seeing that there's significant short- and long-term growth potential in all of our business segments. We have strong megatrends driving market expansion, and we are present in large, rapidly growing market in all of our business segments. Like we heard from our CFO, Petri Hiljanen, we have strong balance sheets, and we have had very consistent financial development, which will provide further fuel for us to continue the growth. We have world-class next-generation products and services, technological leadership in next-generation software-defined defense communication. And we are working with a very solid and diversified Tier 1 blue-chip customer base, and we have very committed and highly skilled people, which is putting us in an excellent position to accelerate the international growth as is our strategy is based on. So I would say that now it's the time for the Q&A, and I'd like to invite the CFO, Petri Hiljanen, with me to provide the answers.

Thank you, Petri and Petri. So here are a few questions. So current Q4 '24 report says that Bittium is now in active discussions with more than 10 different countries about various tactical communication modernization needs and the potential for projects varies from few tens of millions to several hundreds of millions euros. What is included in the current financial guidance? So the current customers, their potential extra orders? Or is it also based on new customers and their orders?

That's a good question. But I would say that I think the start for this year is different than the start of the previous year because we have a very strong backlog that we were able to start this year. There are assumption that the existing customers in addition to the backlog will provide further orders for us. And we have said that we will target 1 new customer for the Defense & Security market per year. Of course, this is something that we have assumed. And while there are multiple opportunities, those opportunities are not -- those are more upside than just the kind of assumption that it would be included in the normal forecast. So I feel pretty confident for this year's revenue targets.

That sounds good. So can you clarify the logic and magnitude of these license income related to depreciations, which you expect to affect this year's results?

Okay. So I think on the -- in overall, the EBITDA level for us are excellent for '25 and also what we plan to do to '26, we have done some discretionary depreciations, which are related on the licensing income for the Defense & Security market. Beyond that, we have not opened that in the detail.

Okay. Thank you. Then there is a question about the Indra EUR 50 million order from last year. How much of that was recorded for last year and activated for the future?

So we have not opened the exact number for '25, but what we can say that some portion of that has been recorded for '25, and it will be also recorded for the '26 and also most likely for '27 as well.

Okay. Then can you talk about U.K. tender of SDR radios or what it is all about?

Yes. So this U.K. is one tender -- just one of those many tenders we are going to participate. And actually, we did submit our new office in London. Last year, we hired a senior kind of salesperson there. And naturally, this U.K. is high priority focus for us. But I'm not sure if I have any detailed information because I think there will be many other companies quoting that as well. And this is just one of those many top priorities for us trying to close this year.

Yes. You mentioned now this year because here is another question about the timing and schedule of the tender. Is there anything you could share about that?

I don't know all these details, but I would say that we hope that some decision will be done during this year.

Okay. Then coming back to depreciations and EBITDA actually. So can you comment on the level '26, so -- regarding the EBITDA also, is there a big difference?

So we have not provided the guidance for the EBITDA, '25 EBITDA was excellent. And we are, of course, seeing growth in EBITDA. But so far, we are setting the guidance for the operating profit level.

Okay. Quite many similar questions here. Also, but any potential wins such as deals related to Bittium and BAE framework or gaining new countries as defense customers include included in the '26 forecast? Or is it just the base level? So basically, you answered this already.

Yes. And of course, we are trying to win new countries to get upside. Of course, there are quite long kind of sales cycles still in this business even if those have shortened. So even if we were able to close more than we expect in order point of view, I think the revenue might still be recorded for the '27 and not just for the '26.

Yes, of course. Detailed question, how much revenue do you expect from Indra in your '26 guidance?

We have not disclosed that number. But like I said, there will be some portion recorded from this licensing part as well as we got this EUR 20 million PO for multiple years, which is covering the support to transfer the technology and the production technology to Indra. So there will be some revenue recognized for '26, but we have not disclosed the exact numbers.

Yes. Thank you. The amount of new orders is EUR 153.3 million and the revenue expected value for '26 is EUR 140 million, EUR 155 million. The orders necessary to achieve the expectations have already been placed. Are there any new -- are there any expectations for the year '26 a bit low?

I would say that this EUR 155 million, what we have in the order book is not everything for the deliveries to happen in '26. Some of those will go '27 and beyond. But like I said, I would say that we have moderate assumptions what we need to achieve for this year.

Good. And so far, the final question comes -- goes to Bittium Tough Mobile 3. So the launch plan was postponed to 2027. How come?

That's correct. There has been some delays as it is typically with this kind of high new technology cases. So there are some delays on the program, which will impact. And that's why we have said that most likely that we plan for the '27 launch for this Tough Mobile 3.

Okay, one more question. So how large deal would you expect from Sweden based on this framework?

I think it's very difficult to estimate any numbers for that. But of course, typically, these kind of new countries are first with the smaller orders. And if these pilots or trials are going well, of course, then there's a tendency that they will order in the bigger amounts.

Yes. Then a question for Medical segment. Can you provide any new information regarding many clinical studies you're doing or new products in the development?

So first, I would say on this new product development, I mentioned this frame agreement with Boston Scientific that includes a development of a new product for the Boston Scientific. And what we have also said that we have started the development of next-generation cardiac products, and this is something which is still in our plans. We have said that we have to strengthen our kind of competencies and knowledge on both regulatory and the clinical sides. And we have strengthened the organization by bringing people which have knowledge on those sides. And yes, they are -- in addition to the R&D development, there are some kind of programs ongoing where we are investing on both the regulatory and also the clinical side of our products.

Thank you for these answers. It seems that, that was the last one for today.

Thank you, good questions. Thanks.

From my behalf, thank you. For the audience as well, good questions and have a nice day.

Thank you.

Thanks.