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

Welcome to the CTT Systems Q2 2026 report presentation. For the first part of the presentation, participants will be in listen-only mode. [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. I'm Henrik Hojer, CEO. And with me today, I have Markus Berg, our CFO. We will present CTT's financial results for the second quarter and the outlook going forward. Next slide. Starting with the highlights in the second quarter. We continue to see momentum in our OEM business with higher volumes. Sales in U.S. dollar increased sequentially 21%, driven by aircraft build rate ramp up and higher content value per A350 shipset. We foresee next ramp-up in volumes in Q1 '27. Aftermarket demand remained resilient despite higher jet fuel prices and flight disruptions. A positive highlight was that spares demand surged with higher order intake and sales late in the quarter. Next slide. Looking at the financial performance in short, comparing the same quarter last year, net sales were in line with our currency adjusted outlook. Net sales decreased SEK 4 million to SEK 76 million, negative FX impact with SEK 2.5 million. EBIT decreased to SEK 14 million compared with SEK 18 million. The EBIT margin was 19% versus 23%. Earnings per share decreased to SEK 0.79 versus SEK 1.19. Operating cash flow improved SEK 24 million versus SEK 3 million. Next slide. Net sales bridge from comparable quarter last year shows growth driven by SEK 12 million in OEM and SEK 3 million growth in retrofit, offset by a SEK 10 million decline in private jet and SEK 8 million lower aftermarket sales. If adding some perspectives under the numbers, OEM, growth reflects the ongoing widebody production ramp-up and remain supported by strong structural demand. While growth is not linear and occurs in steps, the underlying trend remains positive and is driven by structural increases in aircraft production. The year-on-year increase is 125%. Private jet sales temporarily impacted by the absence of deliveries during 2026, activity has been largely dependent on ACJ programs. Given the limited number of VIP projects in the market, however, quarterly sales can be volatile. We have a better setup going forward. The combined -- combination of ACJ and BBJ programs supports a higher long-term activity level. The reported decline in aftermarket sales requires some additional context. The year-over-year decline is primarily explained by approximately 9 million of distribution inventory buildup in the comparable quarter last year. Adjusted for this effect, underlying aftermarket sales increased by roughly SEK 1 million. A breakdown of reported sales shows that aftermarket sales accounted for 64% and 28% from system sales. I now hand over to Markus for some more detailed financials.

Thanks, Henrik, and good morning. Starting with the EBIT bridge. Compared with Q2 last year, EBIT decreased SEK 4 million to SEK 14 million, positively impacted by SEK 1 million in FX, minus [ SEK 2 million ] from lower exchange rate on sales but plus [ SEK 3 million ] from account receivables, account payable valuation. Negative sales mix volume decreased EBIT with SEK 1 million, and sales mix resulted in an EBIT decrease of SEK 6 million. Lower costs, mainly from cost savings, increased EBIT with SEK 2 million. Currency effects remain a wildcard that is hard to predict with major impact on CTT sales and earnings. Even though CTT has all loans in dollar and implemented cost savings, it is not enough to compensate for the negative currency effect on sales. Expected volume growth and cost control will gradually drive the margin upwards to 25% or above. Let's move on and look at the cash flows. Operating cash flow was strong in the quarter, plus SEK 24 million compared to SEK 3 million last year. Working capital, plus SEK 13 million, where account receivables benefited from the receipt of previously overdue payments during the quarter. A new loan of SEK 9 million was obtained during the quarter to finance the expansion of the Nybro facility. Dividend payments of SEK 30 million compared to SEK 67 million last year, reduced cash flow during the quarter. Let's continue and look at the net debt. Net debt amounted to SEK 34 million compared to SEK 35 million in Q2 last year. Cash closed at SEK 12 million. In addition, CTT has SEK 48 million in available credit facilities. Equity ratio at 71%, same level as Q2 last year. Return on capital employed at 17% compared to 23% last year. Let's move on and look at the year-to-date numbers. Year-to-date, net sales increased 6% to SEK 142 million compared to SEK [ 144 ] million. Currency adjusted plus 13%. Sales higher mainly due to the increase in the OEM area. EBIT increased 9% to SEK 24 million compared to SEK 22 million, giving an EBIT margin of 17% compared to 16%. Operating cash flow increased to SEK 15 million compared to SEK 8 million. I now hand back to Henrik for the outlook.

Thanks, Markus. Let's move to the updated outlook for Q3 and the full year 2026. For the third quarter, we expect revenue to be modestly below the previous quarter. We repeat the full-year outlook provided in the previous report with strong demand growth in OEM, estimated revenue to increase 45% to 60% in U.S. dollars compared with 2025 and an improved aftermarket business, estimated revenue growth in U.S. dollars of 5% to 15%, partially offset by weak year in private jet with few deliveries. I will now give you some more details. OEM. The next ramp-up in OEM production volumes is scheduled for Q1 2027. While not all deliveries for the year are firm, it now appears increasingly unlikely that revenue growth will reach the upper half of the estimated range. Comparing the second half of the year with revenue generated in the first half, the outcome is expected to be approximately the same level or marginally lower in U.S. dollars. Aftermarket. The outlook for the aftermarket business strengthened somewhat during the quarter, primarily driven by spare parts sales. If this trend continues, revenues should reach the upper end of the outlook range or exceeded. However, we do not yet have full visibility or predictability across all parts of the aftermarket business for Q4. We maintain the outlook range of 5% to 15% for the time being. Private jet. In private jet segment, projects previously scheduled for late 2026 have been postponed. As a result, full year 2026 is now expected to be the weakest year in several years. Looking ahead, however, we expect to benefit from a broader pipeline as Boeing business jets, now sells the BBJ-737MAX with our system as baseline configuration. Both Airbus Corporate Jets and BBJ have several projects scheduled for '27 with our systems in the spec. In addition, there is an extensive pipeline of VIP projects planned for 2027. Taken together, these factors position us for a very strong recovery year next year. Retrofit. For retrofit, we repeat the full year revenue in U.S. dollar, is expected to remain at the same level as in 2025 as no further deliveries are currently scheduled for '26. Next slide. In Q2, our aftermarket business remained resilient, supported by healthy underlying demand. Our delivery volumes were well aligned with the end-customer activity, resulting in a sequential 5% increase in U.S. dollar revenue. Spare part orders were particularly strong in the end of the quarter and continued to gain momentum into early July. The first half of 2026 reflected the underlying demand environment well. Looking beyond '26, we expect a growing installed base to continue to support demand for consumables and spare parts, while the entry into service of the Boeing 777X is expected to create new aftermarket opportunities. Historically, revenue from IP and spare parts increased during the first years of new aircraft program. as the fleet enters operation and airlines take first delivery. We expect the 777X to follow a similar pattern. Next slide. The OEM business is our resilient growth engine with production volumes trending upward. In Q2, we had a strong quarter. While the ramp-up may continue to fluctuate from quarter-to-quarter, we expect sales to increase steadily over the coming years. CTT's OEM growth is primarily driven by two factors: one, wide-body production rates and deliveries; and two, our ability to expand the average shipset content value per aircraft. Production rates per month is currently at 8 for the 787 with the target of 10 later this year. Airbus is produced in 6 to 7 A350s per month and aims to reach 12% by 2028. In addition to aircraft rate hikes, we see opportunities to accelerate growth through higher shipssrt content. We have already begun to benefit from an increased A350 selection rates and we expect this positive mix effect to continue building through '26 and '27. Taken together, increasing OEM production rates and higher content per aircraft provide a strong foundation for sustainable growth in the years ahead. Next slide. As expected, the quarter was weak for private jet business, reflecting the absence of system deliveries. Although certain ACJ progress have shifted from '26 into 2027, the underlying market outlook remains highly attractive. Supported by our strong partnership with ACJ and our recently established co-collaboration with BBJ, we are well positioned to benefit from a growing pipeline of large-cabin VIP aircraft projects. Both ACJ and BBJ currently plan several aircraft deliveries in 2027 that include our system as part of the aircraft specification. Combined with a substantial pipeline of additional VIP opportunities, this provides a solid foundation for a strong recovery and supports our ambition to establish a structurally higher level of activity than in the past years. Next slide. In the quarter, we delivered a second system batch to Jet2.com. No more deliveries are scheduled for 2026. Full year 2026 will be unchanged compared to 2025. I repeat messaging from previous calls, we need additional orders, and we need to obtain availability to install the system on 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 modifications. I now hand over for questions and answers.

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

First one is on the ramp-up phase here from Q1 '27. I just wanted to understand that if it's -- if you're mainly talking about the ramp-up phase among the OEMs and therefore, the kind of lead times as you typically deliver your systems a bit before that ramp-up occurs among the OEMs.

Good morning, Karl. Yes, I mean it's actually both. As Boeing and Airbus is ramping up their production rates, of course, there are ordering systems from us to correspond to that ramp-up. And of course, we are delivering some months before our equipment is installed in the aircraft. So when Boeing goes to 10, we have probably gone to 10 a little bit earlier.

Understood. And then also on the content per aircraft, it's something you highlighted and talked about for some time now. So good to see. And this is perhaps more of a housekeeping question, but the content per aircraft on the 787, is that one still stable? Or is there anything happening on that platform?

It's very stable over the years. Maybe I could see a slight increase. But I mean, we are already on a very, very high level, trending around 2.5 out of 3 possible humidifiers per aircraft. So very stable, I would say, and a very good selection rate.

And on that same topic, if or when it happens, maybe that will be more kind of retrofit -- in the retrofit channel. But anything to say here about the opportunity now as we get more and more 350s flying around with humidity onboard and that it could increase the potential to create interest in installing humidifiers on the Dreamliner?

I mean that's a clear target for us and has been for years. both to convince Boeing to, at some point, have the option on the line-fit aircraft with cabin humidification to match A350 and the 777X, which both has it. And then we see an increasing logic in retrofitting our system as the number of airlines with our system in the premium cabin flying is increasing. We see opportunities arising on both the A350 and the 787.

Understood. On the VIP, I just -- when reading your remarks in the written report, the deliveries scheduled for the third quarter, you talked about some projects towards the end of the year being postponed into '27 and that's the VIP overall for the full year, will be a bit slower. But can you just give us a bit of color on those projects expected for delivery in Q3? Because my interpretation then is that there will be some revenues booked in Q3 related to VIP then.