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

Welcome to INVISIO's presentation of Interim Report January-March 2024. [Operator Instructions] Now I will hand the conference over to the CEO, Lars Hojgard Hansen. Please go ahead.

Thank you very much, and welcome to the INVISIO Q1 presentation, which we have named a strong start to 2024. So some of the highlights of the quarter is that we received a record order for our Intercom system worth about SEK 230 million. And along with that, we also received an order for radio systems for heavy armored vehicles to a value of about SEK 235 million and that resulted in a record high order intake of SEK 670 million and an order book exceeding SEK 1 billion. We also had a very significant product announcement or launch in the first quarter by our new AI-enhanced INVISIO X7 headset, that I will come back to, and that offers groundbreaking performance. Our revenues in line with Q1 last year and our profitability remains good. And as stated now for many quarters, we expect market activity to remain high for several years to come and we are well positioned to continue to deliver profitable growth. As said, we saw record high order intake during the quarter of SEK 673 million, whereof SEK 438 million were our INVISIO revenues, excluding the radio order. And of that, the Intercom system was SEK 230 million and the third-party radio order about SEK 235 million. What we saw and continue to see, have seen for quite a while is that customers in these geopolitical uncertain times are increasingly favor solutions that are tried and tested. We benefit from that as the market leader and where customers know that what they buy from us INVISIO-branded or Racal-branded products that have been in the market for quite some time and are tested and tried in the most difficult conditions. Our order book remains robust and we have a strong delivery capability. Our order book now stands at SEK 1.25 billion at the end of the quarter or almost SEK 800 million if we exclude the radio order. And we estimate that about 80% of the order book will be delivered within 12 months. We keep a high inventory of standard products. We have always done that. And now it is also a little bit higher than what it has been traditionally, partly due of course to increasing revenues, but also reflecting some of the upcoming deliveries in the coming quarters. Rapid delivery has become a significant competitive advantage and we have the possibility and the financial stability to keep a decent inventory and be able to react quickly to customers' needs. When looking at the revenues, as stated, they are in line with Q1 2023. And then you have to recall that last year's first quarter was the best in the company's history with very strong order intake, sales and profit. The first quarter last year was relative to a weaker 2022 where revenues were only SEK 137 million. So we went from SEK 137 million to SEK 311 million last year and now SEK 308 million. You can say that we are reaching the same high level as last year. And traditionally Q1, at least historically, has been a little bit of a weaker quarter. But we always deliver according to customer requirements. As you can see, we have high inventories. If customers have wanted, we could have delivered more in this quarter. But this is, as I said, according to what our customers have agreed to. So higher market activity, broader product portfolio and our increased sales resources will enable continued revenue growth in line or above our targets. That's what we have planned for with our investments in the organization. Our gross margin still remains above 60%. And we have also communicated in the press release that the gross margin for the radio order we received will be less than 10%. This is a service margin for us handling the entire delivery. We expect this effect on gross margin and to the result in general to be visible in -- starting in the second half -- second quarter of 2024 where we will report both revenues with and without the radio order and the same for the gross margin. Our operating expenses, the trend remained stable. They were largely in line with the prior quarter, Q4 '23, but of course, higher than first quarter of 2023. And the increase, as usual, is related primarily to our focused investments in R&D and sales in accordance with our growth strategy and the opportunities in the market. We can say that headcount rolling 12 months has risen by 18%, while revenue has increased by over 30% and OpEx in total with 24%. So that is the general idea over time that our revenues will increase more than OpEx and investments in headcount. Thereby, our EBIT margin is at the satisfactory level. As stated, we are more or less in line with the last quarter of 2023. And we still see fluctuations in sales between quarters, whereas the trend for operating expenses and headcount is more stable as you saw from the previous slide. Therefore, there will be deviations in our earnings. But over time, we expect, as I said, revenues to grow more than operating expenses. Back to the order, the very large Intercom order. It is quite some years ago since we announced and launched the Intercom system for the first time, this very innovative portable product for communication in vehicles. And as usual, in our type of markets and environments, it takes time before products are fully accepted and evaluated and budgets are available and so forth. So I think we already in 2023 saw good progress for the Intercom system with revenues totaling over SEK 100 million. But now in the first quarter of '24, of course, this is a record-breaking order for the Intercom system with SEK 230 million. And what is also unusual here is that we have been asked to act as a prime contractor and system integrator for the entire communications system, including vehicle radios. And therefore, we will also deliver the vehicle radios to the end user. Total order value of SEK 465 million. We expect deliveries to start now in Q2 and will be concluded by the fourth quarter of this year. The agreement, however, also entails a maintenance and spare parts package, which will be delivered during '25 and '26. So about 1/3 of the total order value will be delivered in '25 and '26. So as we said, the vehicle radio order will have an impact on the total gross margin as INVISIO will only receive a service margin for this delivery of less than 10%. But we will report that separately going forward. This is part of a trend where customers increasingly favor solutions that are complete and that are tested and proven in different situations. And while we might not think that this is going to be everyday business that we deliver such a whole system, then I will not rule out that it can happen again going forward. Our new INVISIO X7 headsets is really a breakthrough in hearing protection and communications. Many years ago, we were the innovators of the first really tactical in-ear headset with the INVISIO X5 that is still the market-leading in-ear solutions worldwide and that has served us well for many years. Now for quite some time, we have developed and tested the new INVISIO X7 with key customers, and it is ready for launch and we have had it tested also with independent test houses in Europe to verify and accredit our hearing protection level. And here, we have an industry-first level of hearing protection superior to all other tactical headsets for dismounted use. We have levels which in technical terms, SNR, signal-to-noise ratio is amounting to 20 -- sorry, 39 decibels, and this is about 10 decibels better than standard headsets in the market that are currently in use. What does that mean? It means a lot for the users because these 10 DB extra attenuation actually means that a user of the INVISIO X7 headset can tolerate 3x higher noise level than a standard headset. But more importantly, also that you can cope with 8x longer exposure to that noise. It means that if you are allowed to be in a certain noise level or environment for 1 hour with a standard headset then you can actually stay in that same environment for up to 8x longer, 8 hours with the INVISIO X7. And I'm sure you can imagine what that means for the operability and the way that you are able to communicate and yes, perform your duties with this type of superior performance. We are ready to deliver this new product. It is in manufacturing. And we expect good sales from it already in '24, and of course, for many years to come. Apart from that, we continue to see very high activity in our markets in Europe and globally as a high interest from both existing, but also many potentially new customers. And we see a very high interest for solutions also related to armored vehicles and vehicle environments in general where you are exposed to consistently high noise level. We expect this market activity to be high continuously for many years to come. And with our total portfolio in fueling the Racal Acoustics portfolio, we are very well placed to continue to profit from that. So with that, I conclude the presentation of our Q1 report and we are open for questions, please.

[Operator Instructions] The next question comes from Hjalmar Ahlberg from Redeye.

First, maybe a question on the Intercom order. I wondered if you could give some more input on the deliveries here? I mean, you say Q2 to Q4 should you expect kind of a linear delivery there or will it be more in the first part of the period or in the later part of period?

I think we will be delivering the majority in Q2 and Q3. So planning is still underway. It's quite a sizable delivery. So -- but majority would be in Q2 and Q3.

All right. And in the last report, you mentioned that you see potential for several large Intercom orders. Is this still the case?

Yes, absolutely. And I think, of course, this order is also being used as a reference for other customers. And we have also during the past several years been in constant trials and tests with customers that are evaluating the Intercom. And as I said last year, we saw revenues of about SEK 100 million. I think slowly but surely now, we're going to see a good progress for the Intercom. It is a very innovative solution. And that with -- as we can see in many markets, growing sales of new vehicles and also pulling existing vehicles out of inventory and putting new into service gives us a lot of opportunities for this Intercom because it's very easy to install. It has a very good price value ratio for many customers. So I'm confident that we will see continued good orders for the Intercom system.

All right. And you mentioned that there is also spare parts for this delivery coming in '25, '26. So this order will first deliver the SEK 465 million we delivered and then you have 1/3 of that in potential spare parts during the next 2 years. Is that correct?

Yes. The total is SEK 460 million something. So SEK 300 million something delivered now and then the remains in '25 and '26. And it's not totally defined, yet they have a possibility of making adjustments to that. And when we say spare parts, it could be entire systems. It's not spare parts as such, it is actually more systems mainly.

All right. And in terms of the order intake, excluding this large order, it was roughly SEK 200 million, maybe a little bit lower than seen in the past few quarters. Is that the sign of -- I mean, I don't know, a slower flow of smaller orders or just general fluctuations?