I-Tech AB (ITECH) Earnings Call Transcript & Summary

This morning, I-Tech published a report for the second quarter of 2026. And standing beside me is the company's CEO, Markus Jonsson. Welcome.

Thank you very much. Good to see you again, Mike.

It's good to have you here with a smile on your face. It's a very strong report, and I can't wait to hear more. You will give us a presentation. So go ahead.

Thank you very much. All right. So first, a very brief introduction for those of you who may be encountering us for the first time today then. But I-Tech, which industry are we operating in? It's actually in the maritime business. And usually, we say this is our intro statement. So what if 1/3 of the global fleet of 110,000 commercial vessels were using 36% more fuel than needed even for 1 day. What would that mean for operating costs and emissions. And actually, the truth is the picture is this bad, right? We have had data where you actually look at the conditions of ship when they come into dry dock after a service period. And it's actually full of biofouling, and that's a serious problem for the international shipping community. So I-Tech then, we have a solution for part of this problem. So our product, Selektope helps actually to prevent barnacles, which is hard fouling organism to settle onto the ship's hulls. And this helps the shipping companies then to reduce fuel costs and also reduce the emissions to air. Also, it helps to protect sensitive coastal environments because fouling is actually one of the #1 vector for spreading of invasive aquatic species. So having a clean hull is very important also from a preservation purpose of the ecosystem. And also then reducing emissions to the oceans because Selektope is a very, very effective and efficient product. So you need very little of it to get a good effect. So I-Tech has been built around the product of Selektope. Our customers are the top coating manufacturers that are making then antifouling coating, which is coated then on the underwater surface area of ships. And it's a quite consolidated market, sort of we have a commercial relationships with the majority of the customers and working very actively with additional coating manufacturers to get Selektope into their formulations and products. So it's quite a unique technology. We are a company based, you could say, on intellectual property and formulation know-how. Our production is outsourced. The penetration of Selektope is still rather low. We estimate that it's today on approximately 3,500 ships out of a global fleet of 110,000. So much more to do as well in terms of penetrating the market with Selektope. I-Tech was introduced to the Nasdaq Stock Exchange in 2018. And since then, we've had a tremendous nice growth journey. So nearly 30% year-on-year growth. So -- and that continues at least for the first half of this year. So it's very good development. And now we come in then to the quarterly results. And then I would like to hand over to Magnus Henell, CFO and Head of Operations. Here you go.

Thank you very much, Markus. It's really nice being here today to talk to you about the quarterly report. And as you can see in the picture in front of us, we have a tremendous development for this quarter. Of course, compared to last year, it's a huge development. But on the other hand, we are comparing with quite weak numbers in Q2. We should be very open to say that. But we given the fact that we are comparing to weak numbers, last year, we still have almost 10% growth compared to our best quarter so far, which was the previous quarter, Q1 in 2026, which means that this is, of course, the best quarter we have had on the sales side as well as the results side. And we have done this by increasing the volume both with all -- almost all our existing customers. It's very much based on the top 2 customers where the top 1 has had very nice growth as well as the second one, which come back quite much better than previous year when they have a significant drop, and we can come back to that later on maybe in the Q&A as well. So given the hard facts, we have an 86% growth compared to previous year, almost SEK 60 million in net sales for the quarter. And which is very nice. If we look on the volume side, it's roughly 100% growth. And the main difference here is mainly the volume price list that we have. We have customers who have taken the next step in their pricing, which means that they have reduced the price a little bit, but also the general mix and as well as the currency effect, of course. Previous quarter, we were talking a little bit about gross margin and that we were a little bit afraid that we should drop a little bit for this quarter and the coming quarters. We have so far been able to manage all of these risks. There are still a small risk that we -- for the coming quarters will reduce the gross margin a little bit. But for now, we see that we have managed the sort of large risks in this together with our suppliers and our customers, of course. So the effect of this growth in top line as well as the continued high gross margin is, of course, that we're coming into a quarter with a very nice EBITDA. We have an EBITDA level of 40%. We have an EBIT level of 36%, which is very strong. And of course, we are comparing to weak numbers last year where they were significantly lower. But on the other hand, we have had the same EBIT and EBITDA level for the first 2 quarters this year, and we show that we have a stable cost base, even though we have this significant cost for the EU regulation, et cetera, still hanging over us, but we are growing, but we are also growing on a stable cost base. Finally, maybe I should point out that we still have a very nice cash conversion, almost in line with the EBITDA level. Of course, this is not something that we can keep on for eternity. But as long as we have these sort of onetime effects every year for the tax for the previous years, then we will continue for at least 3 out of 4 quarters have almost the same cash conversion as the EBITDA. When looking into the different markets, of course, Asia is still very much the highest model. We have taken even further step, 96% this quarter compared to the 4% in Europe. We have very small also to the rest of the world, but not shown on the screen. To point out here maybe is that Korea has significantly improved compared to the previous quarters. And that is main to the 2 largest customers that I was talking about and a large part of their increase was in Korea when we are comparing quarter-by-quarter. So to summarize the Q2, the highlights are, of course, we have 100% volume growth, which is then the strongest quarterly volume so far. We are continuing to diversify, and we have a Korea that is really strong for the quarter and strengthened its position. And we need to point out again, we did point out last quarter as well, but we have a stable high gross margin, 59% and which then results in a very strong EBITDA and EBIT on 40%, respective, 36%. So now having that said about the numbers, I think Markus will talk a little bit about the upcoming events and other development in the company.

Thank you, Magnus. Really strong results indeed and happy to see that we are able then to preserve the margins as well. All right. Looking then a little bit into the future and starting with the outlook. So those of you who know us, you've seen this slide many times, right? But this is essentially the market that we are operating in, right? So we were mentioning a fleet of roughly 110,000 commercial vessels. There are approximately 2,000 vessels being built each year. That number will go up this year because output is increasing. But there are more importantly than around 20,000 dry dockings events happening, right, where fresh antifouling paint is applied. So we estimate sort of the opportunity for Selektope and for other premium antifouling components to be around USD 300 million to USD 500 million. So China has really further strengthened their dominating position within sort of the shipbuilding, but also ship service market, right? It's a very, very important market, and it's also a key growth market for I-Tech going forward. But you can see also then Japan and Korea, where we do have a very strong position, right, is also very, very important. So that's the market, right? If we look at sort of recent developments then, I think geopolitically, shipping has been on the front line for the good part of this year with the Strait of Hormuz issues, right? But despite actually that loss of volume, you could say, from the trade through the Strait of Hormuz, that the shipping industry, as if you just look at the macro, is actually doing quite well, right? Because as an effect of this squeeze in the Strait of Hormuz, the charter rates have actually gone up significantly this year. So at this stage, the ClarkSea Index, which is sort of the average charter rates that the shipping companies can exert from the market is up 61%. And of course, that cash that fuels, you could say, their future investment into their business as well. So we see that also panning out because there has been a really high uptick in the ordering of new ships or new vessels, right, as a consequence of this also, right? So you could say that a large part of the fleet is old. It needs to be renewed. And also up until recently, we had consensus, you could say, on the climate ambition and the decarbonization of shipping. This is still a factor as well, right? But now we see that recent events is actually spiking the new orderings as well, right? So shipyard output continues to increase as well. It's up 14% year-on-year. And then Chinese shipbuilding and shipyards in particular, have been growing their capacities. Also as a consequence, you could say, of the Strait of Hormuz, we have very elevated fuel costs, right? And that really continues to underscore the value of premium antifouling. So you could see here the graph in the bottom here, the bunker fuel price has increased by 70% so far this year. So of course, every liter or every ton of fuel that you can save means a huge thing, right, for the shipping companies' bottom line. So we see -- I mean, geopolitical issues is a major risk to the business, but it's also actually one of the underlying drivers to our growth momentum in the company, right, because shipping is doing sort of kind of okay, right, or really good actually as a result of these various geopolitical issues. So that's sort of the market context. For I-Tech then and for those of you who have attended a number of this meeting, you know that our ongoing reregistration process in Europe is a sort of reoccurring item of discussion, right? And then to give you the latest update, we know now that in the June meeting of the Standing Committee on Biocidal Products in Europe, you could say where the member states and the EU Commission meets to discuss various renewal processes and yes, market approvals of biocides, that they actually discussed the draft proposal for nonrenewal that we actually made a press release from in December last year. So that suggestion was now on the table and was discussed. We also know that they have started, you could say, the last formal step of this reregistration process, which is the so-called WTO-TBT process. So it's World Trade Organization's Technical Barrier to Trade. And this is a 60-day process where other members of the WTO, other member states outside Europe have the chance and opportunity then to comment on new proposed legislation in Europe, right? So they have then you could say the opportunity to comment on this nonrenewal proposal. So as I said, this is a 60-day process. So the earliest that you could see that the Standing Committee on Biocidal Products could vote on this proposal then would be sort of end September. Theoretically, it's a possibility maybe at their meeting in end of September, but more likely then a voting can take place either at their December meeting or between the meetings with the so-called written procedure. So if -- I mean, until then, you could say I-Tech continues, of course, to advocate and to have a close dialogue with the member states and also with the Commission regarding this reregistration case. So if there would be a negative decision in the end, then I want to stress that we are ready then with the appeal process to simply make a legal case out of this, which is, on one hand, good because it's the first opportunity then we have to challenge actually the recommendation or the conclusion that medetomidine or Selektope should be viewed as an endocrine disruptor. So that is ready, the legal case. The current approval in any case, expires in December 31 this year, and it was extended, you could say, from midyear until end of the year during the March meeting. So this is the latest status on the EU process. We have also talked about our business development pipeline, and I'm happy to say that there is a lot of momentum and good progress here. But essentially, we are looking at, you could say, complementing technologies and products to our existing customers, but also then looking at other marine markets, such as aquaculture and yacht market where we are not so present today and also looking into various new technologies and new business models. But essentially with the aim then of broadening I-Tech's product offers and also our focus markets. But we will really -- we are intending to stay within the marine space. And of course, antifouling, that's where we have our expertise, right? And so today, we're going to talk a little bit about aquaculture. And this is a very busy slide, so forgiveness for that. But I think what is important here to actually state that fisheries and aquaculture is a substantial business, right, almost as much as the trade, you could say, of terrestrial meat products, right? So the fish and crustaceans, et cetera, coming from the sea is really, really important, you could say, for food security and sort of for poverty alleviation and for nutrition actually for the world's population. And I think what is important is actually the graph in the bottom left on this slide is that aquaculture, which is, you could say, the farming of fish and various aquatic animals has increased a lot during that. And it's actually the majority today of the volumes that are coming out, right, is being actually farmed and produced in aquatic farms, both inland and coastal farms, right? And actually, this is also where all the growth in the future is set to come exactly, mainly from expansion of various aquacultures. And if you look at the graph next to that one in the bottom, you see, okay, who are the leading producers. And here, again, Asia is really dominating. China, almost 2/3, India, Indonesia, Vietnam, et cetera, right? And this is, of course, in terms of produced volume, but you also have to look into the value and sort of the export patterns. And here, our neighboring country, Norway, right? They're actually the second biggest in the world in terms of export value, right? And that's largely thanks to their salmon production, right, and salmon business. So it is also an important business, you could say, close here in Europe, also in other places like Scotland and also in the Mediterranean, right? So aquaculture, we see as a very interesting market segment for I-Tech to explore further, right? And what is the link between what we are doing in aquaculture? Well, in reality, you could say that the problem with biofouling also exists in aquaculture. And you can see here to the right, there is actually a picture of one farm, right? And you can see then, in this case, the fish, they are kept in these large, large nets, net cages that is sitting sort of anchored to the bottom of the sea, but really out in this case, in the fjords of Norway, right? And these -- the protective cages and the nets, they also get fouled, right? because it's even worse, you could say, than for ships because they are not moving through the water. They are sitting still. And in the summer period, there is plenty of nutrition available. So a lot of fouling species can settle on to the net. And this affects, you could say, the operating costs very negatively, but also it affects the animal health and welfare, right, and results in a lot of yield loss. So essentially, fishes and crustaceans, they die as a consequence of fouling, right? And also to manage this fouling is a compliance issue, right? So you want to sort of be compliant with the various local regulations around the production of aquatic organisms. And here, fouling is really presenting itself with a big challenge for the producers. So one popular strategy today then is to actually impregnate these net cages with a sort of impregnation coating, right? And that's the graph here to the right. Where we are showing, you could say, the market size roughly in million liters in sort of the Western Hemisphere, which is sort of an area that we are focusing on from the beginning. You can see there. In total, we estimate this to be around 20 million liters, and that should be compared then to antifouling coatings for ships where we are operating today, which we estimate to be around 75 million liters, right? So a little bit smaller in terms of the number of liters. But I think also the market characteristics are somewhat different from antifouling for ships. So actually, the life cycle of these nets is much shorter. It's essentially one season, around 1 year that the coating has to survive. So you have a much quicker replacement of the coatings. And it's also, you could say, then quicker qualification periods and quicker way of turnaround to test your innovation, which is an interesting feature compared to the markets where we're in today then. So we actually announced then 2 days ago that I-Tech has acquired new technology, and this is a natural inspired or nature-inspired technology. So it's a naturally occurring microorganisms that is actually producing then a biological additive that can be used as an additive for these net impregnation coatings, for example, to modify the surface characteristics. And this really then reduces the fouling settlement. So it's a quite neat and nice technology if you want to create sustainable antifouling solutions, right? And I think the market where we have come the furthest here is actually within aquaculture. But you could say, over time, it also opens up new opportunities for other areas such as yacht, but also traditional, you could say, commercial shipping and various industrial applications as well. So we see this as a very nice technology that we now bring into the portfolio and that we will be working to qualify them with customers. And you could say commercial sales is probably or likely a few years into the future. But we are quite excited as I-Tech to take this technology on board. All right. So we come to the final -- the business outlook then. So you could say next to this business development opportunity, we are also working then to extend other strategic partnerships. So that continues to be a focus area for us to really work on the business development pipeline. Also then, as you imagine, advocacy then linked to regulations in Europe, but also other places. We didn't talk about, you could say, the new registrations that we are doing in the U.S.A. and New Zealand and so on today. But this continues to be active projects that we are running, you could say, within the regulatory space. And of course, then business development to continue to work on expanding the business for Selektope and then also for these new technologies that we have then to actually create successful future businesses of this. So that will be the focus in the coming period. All right. Thank you very much.

Thank you as well, Markus, and Magnus will also be joining us here for the Q&A. I will now be opening this Q&A. I will turn to one of the analysts who are joining us here on the call, Lara Mohtadi, who will ask their questions from ABG Sundal Collier. Welcome.

I just have a couple of questions. My first one is regarding the recovered customer that well, essentially contributed to -- well, I don't know if there was nothing, but not a lot of volumes in Q2 2025. And now they're back to more normal levels. Are they now at a stable run rate? Or would you say that this is some sort of catch-up that may not repeat in the coming quarters?

I think it's fair to assume that we are on a more stable run rate as of now with -- and if they have caught up fully or a little bit more than previously, that won't be said. But we should assume that we are on a stable path moving forward.

Okay. And CMP, they grew 21% in volume in 2025, and you said that they grew 35% organically for the first part of this year. Could you comment a little bit about CMP? Are they reaccelerating? Maybe if you can comment a little bit about its total share of sales if you're comfortable with that?

Actually, I don't have that figure on top of mind, Lara, right? But since they have been growing so nicely this first half, right? And since they represent such an important part of the overall business being #1, I would assume that they have expanded actually the total share a little bit then during the first half, right? But to comment on the reason for that, I believe that CMP has had a really good first half as well, right? We look forward, of course, to read their next report as well to see how their business develops. But we believe that they have been successful, you could say, with the products and containing Selektope in particular, and actually have been able then to expand their business as well as a consequence of sort of where the shipping industry is today.

Okay. Very clear. And in this quarter, personnel costs were up a little bit year-on-year. And I think you mentioned something about bringing on 3 new full-time employees this year. Where are you in that hiring? How should we sort of think about operational costs through the second part of the year? Is this a new base level? Or is there more to come?

No, I think we are done with the 3 new recruitments, Lara, that you -- that sort of we referred to during the last quarter calls, right? So they are now part, you could say, of the permanent pool of employees, and we're happy to have them on board as well and contributing to the team. So that's really great. So there are no major expansions now in the plan, right? So you should see this as sort of the new base going forward.

And maybe just come back to that because we have indicated earlier that we might start a quite large regulatory study in the fall, that could have an effect on...

On total fixed costs.

Yes.

Yes, indeed, indeed.

So we don't forget that part.

That was actually my follow-up question. I was going to ask how you -- well, it might be hard for you to tell now, but how you're going to book those costs?

This regulatory study that we are to -- if we're going to do it, we're going to conduct it in line with the EU renewal process and which means that this is a project where we have an existing approval, so to speak. It's nothing new. So it's just defending cost for our existing approval, which means then that we will take the cost on the profit and loss as a normal just study cost. It's not a new investment. So we won't put anything in the balance sheet. We will take it over the P&L.

Okay. And it will be half of the cost will be this year and half of the cost will be next year in 2027.

Yes, maximum half the cost this year, I would say. It depends on when and if we are able to start it.

Okay. And the cost associated to the regulatory process you wrote in your report. So these aren't any one-off costs because you've had them for a longer period of time. And usually, these are around SEK 2 million per quarter. Was it in line this quarter too? Or was it elevated?

No, it's been a little bit up and down, but that level is quite a good assumption. And of course, these costs have differed between lobbying costs or legal cost, preparing the legal case, et cetera. But now depending on what happened, at least we shouldn't elevate those kind of costs anymore. But let's see what's happening moving forward.

Very clear. And well, I have a few questions on the newly acquired technology, very exciting, obviously. Can you maybe tell us a bit more what's the moat here? You mean there is already conventional copper-based net coatings and you said there are some other technologies. Why use this technology?

I would say, Lara, from an I-Tech perspective, the motive is really then to, you could say, on one hand, broaden our available portfolio of solutions that we can offer the customers and also look into adjacent markets, right? So new markets like aquaculture and so on to complement the focus that we have today on commercial shipping, right? So that you could say from a strategic point of view. From the customer's perspective, it's a very interesting technology. It is biologically derived. It's readily biodegradable and it comes from nature, it goes back to nature, right? So it is potentially a very interesting technology then to build new sustainable net coatings on, for instance, right? Today, like you mentioned, copper and other biocides are also used in net coating. But we also see that some producers, they choose to go biocide-free and then have more of a cleaning or net exchange approach, right? So there is definitely -- we see an opportunity for new sustainable technology also in this space, right? So there's definitely, you could say, a positive momentum for that in the aquaculture market.

And 2 follow-ups on that. From the strategic point of view, do you see this as -- if I understood you right, you can maybe use this as a complementary technology alongside medetomidine? Or is this a stand-alone alternative? And can you use this in the commercial shipping space as well?

There has been tests, you could say, also in traditional or commercial antifouling formulations to our knowledge that have been positive, right? In theory, you could say that this may have a broader effect than Selektope, right? Selektope is very specific, you could say, to prevent the barnacles, right? And here, you could say we can address maybe more fouling types with this type of technology. But I think it's too soon to say. It won't be a one-to-one competitor to Selektope. I think that we can say with certainty, right? But exactly how it can complement Selektope or sort of offer other benefits to the customer, I think we still need to validate. I think the market that we are the furthest to develop here is aquaculture, right? And that's also our initial focus for this product.

Very clear. And is this similar to Selektope, also seen as a premium coating?

Most likely, yes. Yes.

Okay. And just a last one here on the technology. Does it bring you sort of to a different customer base? Or because in -- sort of commercial shipping, you have 9 major coating manufacturers. In other words, will you be selling to these existing customers? Or are we looking at a whole different customer base?

It's partially overlapping, you could say, Lara. So some of our current customers, they also have business in aquaculture, CMP, for instance, to mention one. However, it's also like you say, there is -- there are new customers to us, right, that sort of specialize in aquaculture coating formulations. So it is a bit of both here in this case.

Okay. Very clear. That was all from my end. Thank you very much.

Thank you very much, Lara. We have a lot of questions from the chat as well, so I'll read them up. And Lara, if you have any more questions, you need to only raise your hand and make yourself known and we'll get to you shortly. Following up on the acquisition, there is a viewer who asks, for the recent acquisition, can you describe the purchase consideration, payment structure and expected return on invested capital?

Yes. I mean we were talking a little bit about the rationale, right, the strategic fit for this product, right? So I won't repeat that, right? But I mean, exactly the return on investments, I would say we describe it as medium maturity. So there's still validation work to be done, right? So when we have actually, you could say, sized and defined the opportunity, we will come back, you could say, with more firm numbers on that. It's not really possible to say that at this stage.