CTT Systems AB (publ) (CTT) Earnings Call Transcript & Summary

Welcome to the CTT Systems Q3 2025 Report Presentation [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Henrik Hojer; and CFO, Markus Berg. Please go ahead.

Thank you, and good morning. Welcome to CTT's quarterly earnings call. We will present the Q3 financial results and the outlook going forward. Starting with some highlights. I want to highlight that we report strong system sales numbers, up 80% so far in '25, driven mainly by private jet and OEM. In Q3, we delivered the first anti-condensation system to Jet2.com of a total of 146. I'm also proud to report that we at NBAA in Las Vegas last week signed a letter of intent to extend collaboration with Boeing Business Jets, offering a cabin humidification system as baseline configuration across the BBJ airplane portfolio. It strengthened our outlook going forward as both ACJ and BBJ now promote cabin humidification. Finally, we continue to expect the partnership with Liebherr Aerospace to include the new COMAC C929 aircraft model. If Liebherr is selected to supply the ECS system, CTT will supply humidifiers and dehumidifiers to Liebherr. The C929 is designed with a total of 6 humidifiers and 2 dehumidifiers as standard. Development is expected to start next year. Looking at the financial performance in short, comparing the third quarter with the same quarter last year, net sales increased 29% from SEK 57 million to SEK 74 million. At fixed exchange rates, revenues increased by 39%. FX had a SEK 7 million negative net sales impact in the quarter. EBIT amounted to SEK 19 million compared with SEK 15 million. The EBIT margin was 25% versus 26%. We have initiated cost savings to counteract a lower dollar rate and improve the EBIT margin. Fully implemented, an additional 200 bps would have strengthened the EBIT margin in the quarter to 27%. Earnings per share increased to SEK 1.15 versus SEK 0.98. CTT generated a strong operating cash flow of SEK 33 million versus SEK 8 million. Bridging the net sales from the same quarter last year, private jet added SEK 12 million, OEM added SEK 2 million and retrofit added SEK 2 million. A breakdown of total sales shows that aftermarket sales accounted for 59% and 37% came from system sales. If we look at order intake and backlog, order intake was SEK 48 million compared to SEK 69 million. Backlog in the quarter ended at SEK 129 million compared to SEK 47 million. I now hand over to Markus for more detailed financials.

Thanks, Henrik, and good morning. I will start with the EBIT bridge. Compared with last year, EBIT increased SEK 4 million to SEK 19 million, driven SEK 15 million by higher sales volumes, offset with SEK 5 million from negative currency effects and SEK 5 million from negative sales mix. CTT has initiated cost reduction measures. Fully implemented, the EBIT margin in the third quarter would have been 27% instead of 25%. Let's move on and look at the cash flow. Strong operating cash flow at SEK 33 million compared to SEK 8 million last year, driven by EBITDA of SEK 20 million and plus SEK 16 million from working capital. Operating cash flow is expected to exceed EBITDA in the second half of the year due to positive working capital. Let's continue by looking at the net debt. Net debt amounted to SEK 2 million compared to minus SEK 13 million in Q3 last year. Cash closed at SEK 35 million. In addition, CTT has SEK 57 million in available credit facilities. Equity ratio at 73%, same level as Q3 last year. Return on capital employed at 24%. We expect to improve our financial position driven by strong cash flow, pushing down net debt to negative. Let's move on and look at the year-to-date numbers. In the first 3 quarters, net sales decreased 5%, but increased 1% if adjusting for currency. System sales increased SEK 29 million or 80% to SEK 66 million. Aftermarket sales were down SEK 40 million due to FX and tough comparable numbers from inventory buildup in '24 and inventory reduction in '25. CTT also had a very strong spare business in '24. An important remark is that end-user demand for consumables is stable. Fact is that distributor sales to airlines increased. The situation with inventory excess is transitory. We predict that we will enter '26 with normal levels. Margins expect to improve in '26, driven by higher sales and full impact of cost reductions. I now hand back to Henrik for the outlook.

Thanks, Markus. CTT will not give a specific guidance for the next upcoming quarters going forward. This is due to unusual large currency movements with U.S. dollar versus Swedish krona, shorter lead times from order to delivery and changed buying behavior among distributors. All in all, this makes it more difficult to predict net sales in the short term. That said, we would like to flag that there is a risk that distributors will keep their inventories down before the end of the year. It's not good for our sales and earnings, but it's a one-off effect. If looking at aftermarket sales, trailing 12 months are at SEK 193 million. We had inventory buildup in '23 and '24. And in '25, we suffered from inventory reductions. The underlying aftermarket shows stable growth, reflecting last year's slow increase in the number of systems installed. When system sales now have started to take off and continues into the next few years, the aftermarket is expected to grow faster. Given that Airbus and Boeing reached their production targets, we expect the installed base of humidifiers to grow by more than 20% per year. We are continuously working with our aftermarket distributors to adapt and improve customer value as well as visibility and measures to reduce order volatility between the quarters. The outlook for CTT's OEM business is strong, given successful aircraft ramp-up by Airbus and Boeing. Orders and delivery schedules indicate deliveries to pick up significantly from Q1 '26. CTT's growth pace primarily depends on Airbus and Boeing's ability to scale production and deliver wide-body aircraft. More new build aircraft will drive CTT's OEM sales. In addition, CTT aims for higher growth rates by improving shipset content. CTT will end '25, beginning '26 start to recognize sales impact from higher A350 selection rates. In addition to line fitting the flight deck humidifier, A350 operators to a greater degree now select humidifiers for crew rest and business class. This will gradually result in a higher average shipset value on newbuild A350s. The private jet business in '25 is heading for a strong sales revival. Airbus corporate jets front-running by promoting humidification for ACJ320, the ACJ220 and the ACJ330. We have strong sales pipeline in VIP, although there is some uncertainty when projects will start. We are still targeting to enter the large cabin business jet market, SEK 100 million opportunity per year in first sales. As stated before, we need to be endorsed and included by the offerings by the OEMs. As you can see in the picture, we continue to address Boeing Business Jet, Bombardier Global, Dassault Falcon and Gulfstream. Not yet there, but I can conclude solid progress in our discussions with Bombardier together with Liebherr. As I mentioned previously, we have entered the next phase with Boeing Business jets. On this slide, you can see Boeing photo released from NBAA in Las Vegas last week. The intention to further collaboration, offering a cabin humidification system as a baseline configuration across the BBJ airplane portfolio. This is an important step for CTT. It strengthened our outlook going forward as both ACJ and BBJ promote cabin humidification. The value and benefits behind this decision also apply to larger cabin business jets. In '25, we will break a 3-year losing streak with zero anti-condensation retrofit deliveries. We started to deliver the first Jet2.com systems in Q3 and another 25 out of the 146 are scheduled to be delivered until the end of '28. We need additional orders, and we need to be obtained ability to install the system in new aircraft. We focus on retrofit customers in Europe to drive and put pressure primarily on Airbus, where we have a better momentum. Together with yet2.com and other airlines, we try to convince Airbus that it should be possible to install our Greentech system in new aircraft before delivery, either as line fit or provisioning for post-delivery modification. As part of this effort, we also have a trial system with a major low-cost carrier in 6 A321s and outstanding quotation at 3 European airlines. But I don't expect to close another big retrofit deal in '25. Let's summarize. We are in a good position to grow from where we are now. OEM deliveries are set to take off, driven by higher aircraft production rates. The outlook based on delivery schedules from Airbus and Boeing indicates steep ramp-up in our deliveries starting end this year and beginning of next year. Boeing is back on track, and I expect a swift ramp-up to 10 aircraft per month in '26, but demand is there for higher output. CTT plans already for 12 to 14 aircraft per month. Airbus A350 is following right behind. Private jets are establishing a higher net sales baseline, although we will have variation between quarter-to-quarters, sales pipeline is strong and revenue should trend higher. Private jet is also in good conditions to further increase sales with BBJ now making cabin humidification standard following and passing ACJ, sending a strong signal to the rest of the private jet OEMs. Our aftermarket sales are expected to increase compared to '25. And finally, we will deliver better EBIT margin and profit '26 driven by higher sales. After a few years of delay, CTT is about to begin the next phase of growth. With that said, I now hand over for Q&A.

[Operator Instructions]

This is Albin Barnevik from ABG standing in for Karl Bokvist. I have a few questions, if I may. So first off, regarding your comment on shorter lead times, does that comment refer to all sales categories or only the OEM segments, for example?

Albin, thanks for joining us. The shorter lead times actually refer to all our businesses. It includes OEM. But with the kit systems on ACJ and now soon also on BBJ, we also make that valid for the private jet market. And in the aftermarket, we also see that all our distributors are reflecting the airlines with shorter lead times and the smaller batches.

Right. Noted. And based on your current view on the customer selection rates, will there be an increase in content per aircraft already in 2026? Or should we see that effect coming more towards the second half of that year?

But based on the selection rates that Airbus is communicating with us, we see that this selection rate increase should start already in the first half of '26.