CTT Systems AB (publ) ($CTT)

Welcome to the CTT Systems Q1 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speaker, CEO, Henrik Höjer. Please go ahead.

Thank you, and good morning. Welcome to CTT's quarterly earnings call. I will present Q1 '26 financial results and the outlook going forward. Next slide. Starting with the highlights in the first quarter. We continue to see a momentum in our OEM business. Q1 marked the best OEM quarter since Q1 2020, driven by aircraft build rate ramp-up. We foresee strong development going forward. In '26, airlines struggle from higher fuel costs and flight disruptions. As a result, an increased number of airlines have begun reducing flight capacity and announced additional future cuts. This will lead to lower aftermarket revenues across the industry. However, CTT is not immune, but we will benefit from structural advantage through its installed base on modern long-haul aircraft. Our base case scenario assumes traffic disruptions in Q2, mainly affecting short-haul flights and older wide-body aircraft, mainly in Europe and Asia. We expect limited impact on our aftermarket revenues. The company's long-term growth drivers, particularly within the OEM segment, are expected to largely remain intact, given the aircraft industry's long production cycles and substantial order backlogs. Next slide. Looking at the financial performance in short, comparing the same quarter last year. Net sales increased 16% to SEK 66 million. If adjusted for FX impact of SEK 10 million, the increase was 21%. EBIT increased to SEK 10 million compared to SEK 4 million. FX impacted minus SEK 1 million. The EBIT margin was 15% versus 7%. If adjusting for one-off project costs and fully implemented cost savings, EBIT margin was 19%. Earnings per share increased to SEK 0.53 versus SEK 0.3. CTT generated weak operating cash flow of minus SEK 9 million versus plus SEK 4 million due to payments due in April and late payments. Next slide. Bridging net sales from same quarter last year reveal small changes overall and comes down to net effect in the aftermarket sales. Aftermarket sales increased mainly due to weak comparable quarter due to inventory reductions in Q1 '25. Net effect plus SEK 12 million. Revenue from OEM decreased SEK 1 million. FX offset volume increases. A breakdown of total sales shows that aftermarket sales accounted for 66% and 26% came from system sales. Next slide. Comparing with last year, EBIT increased SEK 6 million to SEK 10 million, driven by SEK 12 million from higher volumes, offset by SEK 1 million by FX and SEK 4 million from negative margins. Next slide. Weak operating cash flow of SEK 9 million, working capital negative minus SEK 17 million due to account receivable payments pushed to Q2 '26 and inventory buildup. This is temporary. We expect better operating cash flow going forward. Next slide. Net debt amounted to SEK 21 million, comparing minus SEK 29 million in Q1 last year. Cash closed at SEK 16 million. We expect to improve our financial position going forward, driven by stronger cash flow, pushing down net debt to negative. Next slide. Let's move to the outlook for Q2 and the full year '26. For the second quarter, we expect revenue in U.S. dollar to increase compared with the previous quarter, but not exceed the comparable quarter last year. Updated 2026 outlook. For the full year 2026, we expect higher revenues in U.S. dollar, driven by significant volume increases within the OEM segment and higher aftermarket revenues. In U.S. dollar, we expect OEM revenues to increase by 45% to 60% and aftermarket revenues by 5% to 15%. We no longer expect full year private jet revenues to exceed '25 levels as several VIP projects have been deferred into 2027. The outlook for private jet segment has not worsened. The change is primarily related to timing. Retrofit revenues in U.S. dollar are expected to remain at roughly the same level. Next slide. Looking at the aftermarket. Inventory levels at the distributors are better balanced. We had a solid Q1, and we view it as a good reference going forward. Next slide. The outlook for CTT's OEM business is strong, given planned aircraft ramp-up by Airbus and Boeing. 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. Boeing 787 is now on rate 8 per month, targeting 10 per month later this year. Airbus is at 6 to 7 A350s per month, targeting 12 in '28. In addition, CTT aims for even higher growth rates by improving shipset content. CTT will -- in '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 rests and business class. This will gradually result in higher average shipset value on every new build A350. Next slide. In private jet, 2026 starts weak with no planned kit deliveries. During the first 3 quarters, revenues are expected to come mainly from development projects. Airbus Corporate Jets front-running by promoting humidification for ACJ320, the TwoTwenty and the 330. Prospect pipeline looks good within [ ANS ], but with uncertain timing. Boeing Business Jets includes humidification as baseline configuration, and we have several VIP opportunities with deliveries scheduled for '27. Next slide. We started to deliver the first Jet2.com system last year. Deliveries in '26 are scheduled to be unchanged compared to '25 all in Q2. We need additional orders and we need to obtain availability to install the system in new aircraft. Together with Jet2.com and other airlines, we try to convince Airbus, that it should be possible to install our Green tech system in a new aircraft before delivery, either as line-fit or provisioning for post-delivery modification. Next slide. To summarize, OEM is driven by higher aircraft production rates, indicating steep ramp-up in our deliveries in '26. Private jet is establishing a higher net sales baseline, though '26 will be slow. Sales pipeline is strong and revenue should trend higher in '27. Aftermarket sales in '26 expected to be higher than '25 and higher sales will gradually improve EBIT margin in '26. I now hand it over for questions and answers.

[Operator Instructions] The next question comes from Karl Bokvist from ABG Sundal Collier.

First one is on the OEM side. As you say, production rates, at least the guided ones from the OEMs are indicating that they're heading upwards. Just out of curiosity in case you're picking up anything in the value chain that could pose a risk to this or if it's more related to the aftermarket, which we'll get into later in the Q&A.

Thank you, Karl. No, I'm not picking up anything else listening to the same messages as everybody else. Boeing talked a little bit about certification problems, still on the seatings. But other than that, I think they're doing pretty good. And that the seating problem is usually not affecting the production rates, rather the delivery rates.

And can you remind us how the lead time looks for you currently when it comes to OEMs raising production rate and you actually delivering higher systems and booking revenue?

I mean, exactly how early -- much earlier we deliver our systems compared to when they are mounted in an aircraft and then finally delivered to the end customer is quite hard to judge. But we see that now Boeing has really established production ramping up steadily from a year ago, 5, via 7 and now stable on 8. They put orders on us, I would say they're starting to fill up orders in Q4. So we see a steady rise there. On the Airbus side, we're happy that we have now completed the move-up from Tier 3 to Tier 2, which gives us better visibility even if we have very short delivery times to A350. We see that the forecasts are stabilized on a higher level and stable during the year. So I think not maybe answering your question directly, I think it gives you a kind of indication on how it looks.

All right. And then if we head into the aftermarket channel here and how slower air travel could affect this. So leaving a year, where we had inventory adjustments and would you say that the inventory levels among your distributors -- first of all, that you have a better kind of track or monitoring on the levels of this? And two, that the levels are now kind of healthy or normalized so that they will not just simply rely on depleting their inventory and that could pose another risk to the aftermarket sales for you?

Well, as we stated in the report, the inventory levels at the distributors are better balanced. We also saw that we really tracked the end market demand during Q1. We have good visibility in our distributors' sales and inventories. And I don't know if anybody noticed, but we just moved our distribution channel within the Boeing company to a place where we think we are better or I know that we have a better structure, and we will also have better visibility than we have in the past. So we feel confident that we are in a situation where the aftermarket is and the stock levels are balanced and that we have the right distribution channels now. Then coming to the second part of your question is how the ongoing turbulence in the world will affect our sales. And as I said, -- and what we can read so far is that airlines are taking out the nonprofitable lines, which is usually short haul and old aircraft and all CTT products are on the profitable long-haul businesses on the modern fleets, the modern wide bodies. So yes, I don't think we will be totally untouched, but I think we can navigate this turbulence in a very good way.

And can you just both like repeat what you said on the retrofit side, how we should think about, I mean, all else equal, maybe there will be some delays or not. But based on kind of your plan as of now, how you think about the retrofit deliveries this year and the next possibly?

So if we look at retrofit this year, we will continue to deliver systems to Jet2.com. They will be on the same levels as they were in '25, and they -- those systems will be delivered in Q2. Then, of course, we continue to look at the market for retrofit of both the anti-condensation systems and also the humidification systems, but we have no orders yet, and that means that it's very unlikely that we will have any more deliveries affecting our net sales during 2026.

Understood. And then also just going to the cost side, the one-off costs, well, the name says itself, but just to understand like what makes you confident that this will be a one-off item and not something that could arise again?

No. But I mean this cost is linked to the ACJ330 kit system development project that we signed in '24 and have been developing together with ACJ and our partner, PMV during '25 and '26. And in a project like that, we also have some costs to our supply chain. And one of those costs came now when the project was finalized, which is natural. And that means that we will not have one-offs like that. If I get a new kit development project, I might have new one-off like that, but they are always linked to a project.

Understood. And my final one is just apart from the currency, we see a lot of different input materials increasing in price. So just curious how you think about, well, cost management on that front and also the possibility of price adjustments to mitigate inflation?

If I start with the first part of cost control, our business is not immune from price increases on material. We, of course, try to have long-term contracts with our supply chain. And in most cases, that is the case. And there, we have a stable cost situation. Where we see big cost increases, we need to take decisions and see can we change the supplier? Is that in our environment, a possible way to do it linked to that we also need improvement of Boeing and Airbus in the end? Or can we even -- which we have done in some cases, in-source the production to lower the cost. So we're constantly working with the cost base on our OEM projects and of course, on the VIP side and the aftermarket as well. On the price increase side, looking at the OEM business, we run under long-term contracts, which are fixed for at least a couple of more years. But after that, there is a possibility to negotiate with Boeing on the price side. And if you look at the price increases on aircraft that they sell, I think there's a possibility to adjust to a higher cost situation that we have seen after the pandemic. On the Airbus side, we have a little bit better possibility to adjust. And even if it's not great, there is a possibility. And as you know, then finalizing it on the aftermarket, our contracts give us the possibility to adjust the prices and usually, the adjustments are in line with the worldwide inflation. And private jet, of course, there is a possibility to price adjust.

Understood. And then just finally, one comment that you talked about 1 quarter ago was this ambition to get the penetration up to around 2% for the full year. And I'm just a bit curious how we should -- well, now 3 months further ahead into the year, maybe a bit better visibility on that side. So one, how do you think that is progressing? And how we should think about this kind of penetration for the full year?

No, but as I said, when it comes to the OEM situation. We really see that we are -- the volumes are picking up on A350 and that we are seeing a better selection rate going forward. If we are exactly on 2% when the year ends, I cannot comment on today, but we are very confident that we are growing faster than their production rates on the A350.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you. And then before closing, I will take this opportunity to summarize. Although the business environment for airlines will be difficult with fewer flights, we expect long-term global air traffic growth to resume. CTT is not immune, but we have a robust business model supported by growth driven by long-term and resilient aircraft production plans. This enables us to continue growing in essentially all scenarios, even if airlines adapt their operations to higher cost levels over an extended period. As a result, we anticipate resilient growth in the installed base of humidifiers, which in turn supports aftermarket growth and creates additional retrofit opportunities. There will be -- there will, for sure, be turbulence along the flight, but we are well positioned. Thanks for listening.