Invisio AB (publ) (IVSO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome of the presentation of INVISIO Q3 Report 2022. [Operator Instructions] I would now like to turn the conference over to your speaker today, Lars Højgård Hansen. Please go ahead, sir.

Thank you very much, and welcome, everybody, to our Q3 update. The headlines for this quarter is increased growth and a strong order intake. And the main points from the quarter is that we continue to see positive market development, a lot of activities going on. We have a very active sales effort in all parts of the world. And from that, we have seen increased growth in sales during the quarter. It is also very rewarding to see that our order intake on a rolling 12 months average for the first time exceeds SEK 1 billion, of course, a milestone for the group. Our order book is also the strongest ever but we still see deliveries lagging due to component and supply issues. However, the situation is gradually improving. And after 2 years of difficult conditions in our industry during the pandemic, it is now time for us to start harvesting from our recent years' investments in the product portfolio and the sales organizations that we have continued to do despite the global pandemic. So if we turn to the next page for the financial results for the quarter. You will see that our revenues are up by approximately 37% and there is some currency in that. So if we disregard currencies, it's a 26% growth up to SEK 195 million. And for the 9-month period, it's about a 10% growth, where of 3% are related to currencies. Our gross margin is a little higher than the previous or similar quarter last year, SEK 58.1 million. And for the 9-month period, we are at SEK 58.4 million. We are still seeing some effect from the fact that we have to buy certain components at the spot market at a higher-than-normal price, and this is probably impacting our gross margin in the size of 2%, 2.5% because of this extra high component costs for certain components. So we are happy that we are now, after 2 difficult quarters, we are back in a profitable situation. EBITDA is SEK 29 million. And for the first 9 months, we are at SEK 40 million. And that gives us an EBITDA margin of 15% for the quarter and 8.3% for the year. Again, we are, of course, affected by the fact that the 2 first quarters of 2022 were not so strong. And a little further down, the operating margin is 9% and 1.1% for the 9 months of the year. What is very rewarding and very good for us to see and report is the order intake that stands at SEK 291 million, almost SEK 300 million and that is very high, almost a doubling from last year in the same period. And now for the 9-month period, we are at SEK 845 million. As I said, on a rolling 12 months basis, we are above SEK 1 billion. And of course, if we have a little luck and work very hard in the last quarter, we have a possibility to even exceed SEK 1 billion for the calendar year 2022. That gives us the strongest order book in the history of the company, SEK 615 million, almost 3x as much as last year at the same time. So where we are well positioned for the coming quarters. On the next page, just a few more details and graphs on the order intake and the order book. As you can see, the order intake during Q2, especially -- sorry, Q1 and Q3 in 2022 has been very strong. And that, of course, has helped us get to the level where we are now with the breaking of SEK 1 billion line. So that is a fantastic news. The order book per quarter and rolling 12 months on the right-hand side, as I said, is showing a record high level of plus SEK 600 million at the end of the quarter. It is, of course, always a question of how much more could we have delivered if we hadn't had any difficulties with components and so forth. And that is, yes, hard to estimate at this point. But we think that we are in a good position to manage customer expectations, most importantly, so that we deliver within the time frames that our customers are asking from us. And that is, of course, the most important. On the next page, the sales performance, sales per quarter and rolling 12 months. Sales, as I said, up 35% and still somewhat impeded by component delays. We, as I said also, we do see improvements. It is fewer and fewer components that are causing us issues. But we still expect this to continue for some more quarters until we are fully back to a normal supply and component situation. And the gross profit per quarter on the right-hand side, as you can see, we are close to our internal target of minimum 60%, and we have been impeded by these spot buys that we need to make in order to be able to do certain customer-requested deliveries. On the next page, the operating expenses. We are at the same level as the previous quarter. And in the previous quarter, we did have some one-off costs. And in this quarter, we do not. But in this quarter, we are seeing very high costs related to sales activities and that includes trade shows and includes a lot of travel and customer activities, et cetera. So there is a lot going on, but it's also clear that travel has become more expensive for many reasons. And we are -- many more people in the company that travels these days in our sales organization and also other parts of the organization. So the good news is now that we have broken the downward trend on the earnings, both EBITDA and EBIT. We've had some tough quarters during the pandemic and where we couldn't get out and visit customers as normal. But as you know, we consistently continued to invest in products and in our sales organization so that we were ready when the curtains were lifted. And I think we are seeing the trend being broken now and hopefully, we are back on track for continued growth after this quarter. On the following pages, a few highlights from a customer point of view. We received an order worth SEK 58 million from a European NATO country, a new customer, and this concerns the latest generation of our control units and headsets under the INVISIO brand. And here, deliveries are planned for the first half of 2023. We also received an order from an existing customer within the U.S. Department of Defense. And same here, it's for our advanced communication and hearing protection systems under the INVISIO brand. This is a long-term INVISIO customer, and we continue to roll out our system solutions for the users of this customer. Deliveries here are mainly within 2022. It is very encouraging to see that we, during the quarter, have received 2 volume orders now from our -- for our new Intercom system and the cumulative value is about SEK 30 million. So it's been a little bit tough to introduce the Intercom system during the pandemic due to the lack of customer issues and so on. But now we are seeing a very high interest and also a good traction in several markets for the Intercom, number of small test orders. But this is an order where we have higher volume and we actually expect this customer to continue to buy more Intercom systems. So this will be a good reference for us in other parts of the world as well for the Intercom. But there is good activity, and we continue to strengthen our sales efforts and put resources into making sure that the Intercom will fulfill the potential of being a very important growth contributor to the INVISIO Group. On the next page, on another area of growth and interest for us, the law enforcement and security. Here, we have signed an agreement with Danish Police which includes the latest generation of our headsets, both in-ear and over-ear headsets, and control units and cables. And the agreement is a longer-term one that also has an extension possibility. And we are, of course, very proud that we both have now the Swedish and the Danish Police, our home markets, on the customer list. That is important reference customers for us elsewhere in the world. But we also have a large number of -- a growing number of some of the most demanding law enforcement units in Europe as well as the U.S. So the law enforcement part is important for us and we'll continue to show good growth. Turning to the next page, the outlook. Yes, everyone has, of course -- are full aware of what is going on in Europe right now and the geopolitical uncertainty that we see. You've also, I'm sure, seen all the announcement about increased defense budgets in several European or in many European countries. And there's no doubt that the need for modern communication equipment with hearing protection and also communications equipment in vehicles is great in many countries and that the larger budgets will allow for a faster rollout. We will still say that in the short term, the impact on us is probably limited. There are other things that need to be bought before you get to the communication part. But there's no doubt that the communication part is very, very important and that the larger budgets and the more soldiers that will be deployed will mean an increase in demand long term. We are sure that this will be a growth opportunity for INVISIO over many years. So in summary, we are very positive for the end of 2022 and for as far as we can see in 2023. The market conditions are again very active and are starting to resemble that what we saw before the pandemic. And as a result of the large order book we have now and the current very active market, we predict that the order intake and sales will continue to be strong in Q4 and into the beginning of 2023. We continue to have a high focus on sales and marketing of our many new product solutions. And we will also now increase penetration and expansion on the new geographical markets that we were addressing prior to the pandemic and where we have been in peace a little bit. So we are now starting to get back on track. So the immediate future looks bright. It's time to start harvesting from our recent years of investments, and we are absolutely sure that INVISIO has a very bright future. So with that, I conclude the presentation for today. And operator, we are ready to take questions, please.

[Operator Instructions] The first question from Hjalmar Ahlberg from Redeye.

Maybe just the first question on capacity and deliveries. I mean you're still constrained by logistics and components. But can you say anything about the kind of maximum quarterly delivery rate you can do with the current capacity? And if you can say, I mean, how fast can you increase capacity if delivery constraints were [ increased ]?

I would say that we don't have any capacity in that regard because it is a little bit related to certain products. So it will depend a bit on what certain orders we got for certain products. So I don't think that we see constraints in that matter. We have to say also though that, of course, coming out of the pandemic now, and suddenly increasing volumes quite a lot is, of course, also a short-term logistical challenge for some of our partners in the sense that they need to employ more people to make our products. But this is what they do all the time. So we expect this only to be a very short-term thing. So yes. So as an answer to this, I don't think we have capacity issues. It is the component situation that is constraining.

All right. And your comment on the cost base. I mean we did see that you have a more stable cost here, but you do see increase from more customer activities and sales activities. Do you think this will increase even more looking into next quarter and next year? How do you think it will be?

Yes, hard to say. I think of course, we are, of course, now after long-term of investment in a lot of new products and seeing a lot of opportunities around the world, it would, of course, be wrong not to take these opportunities. So if we see that we do actually need a few more people to be able to manage all the different things that we are working on and the different customer opportunities, then we will do it even though it is an investment in more people. So it will be activity-driven, so to speak. So when we see more opportunities and things we need to work on, yes. And that also includes R&D. We are constantly looking into different types of product additions or things that we could -- what customers are asking us for. And if we think it makes sense, we will add more R&D people to develop some of the stuff that customers are asking for. So it is activity-driven.

And you also touched upon the gross margin that you're getting close to minimum 60% level. Do you think that's something you can reach, I don't know, during 2023? Or when do you think you will reach that kind of 60% level?

That's at least the ambition. But again, it's a little hard for us still to estimate when we will be out of the spot market buys of components. So at least that alone would have taken us to 60% if we didn't have to buy certain components at a higher price. So -- and then, of course, it will -- it's very uncertain right now in terms of what the inflation will continue to be and how suppliers will react to increased prices. But so far, we've been able to manage increased supplier pricing with our own price increases. And we will continue to monitor very closely and yes, hopefully, soon be back towards 60%.

And then a question on your growth level here. You mentioned, I think, 27% organically still in currency. Can you also say how much -- I mean, did the prices have a big impact there? Or was it only mainly volumes that were [indiscernible]?

It was mainly volume. It was mainly volume.

And the next question is from Daniel Thorsson from ABG C.

Lars, I start off with a question on the geographical development here. So the growth in Q3 was driven by Europe while North America dropped year-over-year despite strong FX tailwinds. Is that just a temporary effect in the quarter or anything underlying causing you to have negative growth in North America, both in Q3 but also year-to-date? And do you expect that to revert to growth in Q4 and '23 related to your positive outlook? And I apologize if you talked about it in the beginning, I was 10 minutes late due to another conf call. But that's my first question.

No problem. Yes, I think it is all down to timing and the different geographies. Certain large orders will turn the picture upside down. So I would say there's no real trend in this more than sort of timing of certain orders. As we sit here in Q3, we did receive an order from the U.S., a larger one for about SEK 40 million from an existing customer. And that, of course, will impact sales positively to the U.S. in the fourth quarter. So it is about timing mainly where we see the different regions performing.

Okay. Okay. So nothing underlying in the U.S. that you see any type of competition or that you have penetrated more of the market, et cetera?

No.