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

Welcome to Invisio's Presentation of the Interim Report January to September 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Lars Højgård Hansen. Please go ahead.

Thank you, and welcome, everyone. So the outcome of our third quarter 2025 is to a great degree already known since we have published the key figures already some weeks ago. And therefore, I will focus on some of the operational and business highlights in the quarter. It has been a very busy quarter on all parameters. We have seen high levels of activities in all geographies in all customer areas and we saw the results in terms of strong underlying intake of small and medium-sized orders. And with the delivery delays that we announced some weeks ago, this means that the order book that we have at the end of the quarter has been significantly strengthened. Even though we also still see some impact from tariffs in the U.S., we still maintain healthy margins. But the fact of the matter is that this quarter from a financial point of view, of course, is disappointing since we have lower revenues than expected and because of our business model with outsourced manufacturing, our operating margin is doubling and is minus 0 in this quarter. But back to the operational highlights because it has been very, very busy. And there are 3 things that stand out. First of all, the 10-year frame order agreement that we have with the U.S. Coast Guard with a value up to USD 99 million or SEK 930 million. After the quarter, we also entered into a 5-year framework agreement with the Netherlands MOD, Ministry of Defense with an option for another 2 years. And apart from that, the quarter saw a massive amount of product launches from Invisio in connection with the trade show ACI in London. It is probably the largest number of new products we have ever launched. So, I'll be back to that as well. Looking a little bit at the numbers. As I said, good underlying order intake around SEK 500 million almost. And on a rolling 12 months, we are at SEK 1.7 billion. So, continue to be good spread across our different product categories and our different user types and geographies. So good mix across the board. And it means that we leave the quarter with an order book close to SEK 900 million. And as usual, the majority of the orders are expected to be delivered in the next 2 quarters, meaning Q4 2025 and Q1 2026. So, as we have already said, our revenues were impacted by delivery delays. And those -- several reasons for that. One of them being that sometimes our hearing protection solutions are delivered together with the communications radio or together with a certain vehicle and so on. And if that communication radio has a different delivery time from when we expect to deliver, then we are sometimes asked to postpone our delivery so that customers can receive the whole system, including communications radio in one go. Another reason which is becoming more relevant is the fact that over the last 3, 4 years, Invisio has developed greatly. A few years ago, our core product solutions was a hearing protection headsets with a control unit and a few cables, meaning 4 or 5 products or order lines per user. Now one of our advanced systems, for instance, intercom wireless link can count up to almost 100 order lines. So, there are so many different parts of the delivery -- and this also means that if the customer is requesting a little bit of a change to one of these 100 parts or if there is a slight deviation from any of our suppliers in one of these 100 pieces, then there will be a slight delay. Normally, it would be spread out over the year. But just in this Q3, we had a little bit of a perfect storm where several things happened at the same time. But all in all, as we always say, you have to look at Invisio on a rolling 12 basis and not on individual quarters because of the usual fluctuations. Our gross margin was still solid in Q3. We did see some tariff costs still impacting our gross margin about SEK 4 million. We also see some impact from currency, Swedish krona towards dollar, especially. But we think, again, if we look over a longer period of time, the last 4 quarters, we are close to 60% gross margin in average, excluding the third-party radio deliveries. And as we have said several times, we think that our broad product portfolio with many new products coming into the mix will continue to support a strong gross margin of the company. Our long-term OpEx trend has been steadily growing and also now in Q3, although at a little slower pace. Our head count is up 16% this year. And as I think you all know by now this is driven heavily by investments in new products and also in our sales team. We have, in the last 12, 18 months, announced a wide range of new products and additions to our sales team to be able to handle the customer contracts and sales of many of these new products. And most of these new products have not really come into the market yet. So, we expect the starting point to be 2026 for a lot of these new products. So, on the margin side, yes, very clearly, we have a business model with outsourced manufacturing where revenues are lower, it hits our margins, our operating margins directly. So, we ended up with a minus 1% in the quarter due to lower revenues. Still on a rolling 12, we are at 17% margin at the end of the quarter. Inventory has been a competitive advantage for a very long time and still is, albeit in this quarter, we were not able to compensate with our inventory for some of the delivery delays. But still going forward, we believe that inventory value is going to be a significant competitive advantage, and it is a decision for us to continue to do this because it is standard products, and there will be many situations where customers are asking for deliveries with a very short notice. Cash flow operating activities, SEK 105 million against SEK 152 million comparable and that decrease is primarily due to the results during the quarter. So not much to comment on that. Now into the more point, our daily operations. So, first of all, the 10-year contract that we have secured with the U.S. Coast Guard, the largest agreement to date and really a company milestone. This is something we've been working on for almost 3 years throughout the company and with a very, very keen and focused effort to be able to achieve this. It is a contract that is related to our Intercom system combined with our new EU Link, wireless solution and headsets controllers and intelligent cables. And what the customers have told us is that they intend to install it on a large number of what they call small boats, whereas public information is available, they have several thousand. The agreement is worth up to SEK 930 million over 10 years. And we already have received the first small order from last year's project that they will be -- we will be delivering to them in the end of 2025. In itself, it's a milestone to be asked to equip the U.S. Coast Guard with this very, very advanced implementation solutions, but it's also an entry point for us into a new type of users that we haven't been able to address much earlier. So, we believe that this Coast Guard entry will open doors for us with Coast Guards globally and not only in the U.S. It will also open doors into all military marine applications where our wireless system is going to be very relevant. So, this is the starting point of a new application area that we see extremely interesting all time for Invisio. Next, the framework agreement with the Dutch Ministry of Defense. Now this is a contract that is for 5 years and includes the majority of our Invisio products including headset control users and intelligent cables. It's according to the customer worth up to SEK 365 million, 5 years with an option for 2, 1-year extensions. We do expect the first orders to be received already before the end of 2025. And if this follows the pattern for many other contracts that we've seen over the years, this will be a very long-term relationship with the Dutch MoD, and we look very much forward to start rolling out the program and responding to the communications needs that they have. Then over to some of our product announcement launches. First of all, the T30, we have already spent quite some communication time on this in terms of press releases and others. But we still think this is one of the most important product releases in the history of Invisio because it is our first own internally developed stand-alone over-ear headset. We have over headsets before like the G7 but that has more been a specialty application headsets towards real-time environments on the water and so forth. This is -- the T30 is the sort of conclusion of everything we learned in the last 15 years. So, this is really a state-of-the-art communications headsets that are very versatile and can be used in many different situations including those that are not equipped yet with their own communication radio. We are at the final stages of ramping up in manufacturing. So, we expect that the product will be able to contribute to our growth significantly already in 2026. At the same time, the technology we acquired earlier this year from Olin is now turned into the Invisio H-Series data hubs. And this is a very exciting product area where we are able to connect many different devices that were not originally developed and intended for being connected. Through our data hub, we are able to do that. We are able to transport all the data and power throughout the entire system. This was one of our most busy areas at a recent DSCI trade show in London. So, we believe we have a real winning solution here, and we believe that the Invisio X-Series will act as a catalyst for development of future innovative and cutting-edge products in the Invisio portfolio over time. So, we also expect this to contribute to our business revenues already in 2026. Turning to the Invisio Link wireless addition to our Intercom. As I said, this is what the Coast Guard have chosen. And this is definitely a solid product portfolio addition that will be a cornerstone for future growth, and this also attracted a lot of attention. This is a product that is already ready and shipping to customers. So, this is something that will contribute to revenue already in '25 and onwards. So just an update on our shareholder structure where our largest shareholder, [indiscernible] Foundation have increased their shareholding just after the quarter with 2%. But other than that, a very solid and strong base of shareholders both in Scandinavia, Europe and U.S. that has been supporting the Invisio case and group for a very long time. In summary, as we have said now many quarters in a row, we expect market activity to remain high for several years to come. There is so much going on in especially Europe, but also in the U.S. Modernization needs to continue. We all hear every day in the news how this is urgent and how we need to speed up. The are being increased. And even though we are a little later in the timeline than weapon systems and liner and so on, we can see that there is a high interest for our types of products, and we are sure that we will be part of this ramp-up shortly. So, from this position, we now look forward to capitalizing on opportunities that we see in the market and with a very strong product portfolio, the best ever with some new large frame order contracts in the bag. We are very much looking forward to the fourth quarter and into 2026. So, this was a short summary of the quarter. I would just mention also, I'm sure there will be questions around the shutdown in the U.S. And yes, short time permit has a little bit of impact on us right now in October, but we cannot expect this to have any significant impact on us in Q4 going forward unless the situation escalates or get really, really lengthy. But so far, no real impact on us. Thank you for now, and I can open for questions, please.

[Operator Instructions] The next question comes from Adrian Elmlund from Nordea.

I just want to say that I think there might be some technical issues with your mic, Lars. I have at least had some hard time hearing, unfortunately. But I'll shoot my questions anyhow and hope that you haven't answered them already. But first off, could you quantify in any way the magnitude of the order that was pushed from Q3? What sales would have been if these orders were delivered in time?

Adrian, I'm really sorry about the speech quality. Can you hear me okay now?

Yes, it sounds better now.

So well, we have not really quantified that because it is in a sizeable, well say, we are talking more than SEK 100 million at least that were moved, but I don't have the exact number because there has been things we were able to move forward as well to compensate a little bit. So, it has been a little bit at least SEK100 million.

And also another question here, I guess. Could you give any sort of comments into the sort of the current trading into Q4? I think that you mentioned that at least the majority of this order should be delivered in Q4, right? And we also -- we have seen the underlying order intake here in Q3 was really strong. I suppose that, that will continue. And I think that you have previously this year said that you expect kind of a stronger end to the year. Does that still hold?

Yes, I think so. If nothing else happens, yes, I think, as usual, the order book that we hold, we should be able to invoice the majority of that in Q4 and Q1. So that I think I can stick my neck out and say that Q4 will definitely be better than Q3.

And kind of a question here regarding the supply chain risk. Do you think it -- is it fair to say that it is systematically higher now following the huge influx in volumes in the tire sector in the last couple of years? Or is this just normal course of business that you have to deal with being in the defense sector?

Yes. I think for us; it is more the consequence of the complexity of having so many more product lines in one system. But in -- we don't have any manufacturing issues. We don't have any component issues, and we still have a large inventory. So, it's more matching the exact inventory to customer orders and then also just the timing of making sure that all products in one system are delivered at the same time. So, it's more the complexity of timing. At the same time, we are also, of course, constantly updating and reviewing our supplier setup to make sure that our capacity is adequate for the business that we see going forward. So, I see this more as being a short-term thing.

But it kind of sounds to me at least that we should expect, I guess, a higher risk going ahead? Or is there anything you could do to kind of mitigate this risk going forward?

There is. And I think part of it is also because we have been balancing deliveries together with making all of our new products ready for deliveries and sales. So, it always takes longer when you are in the ramp-up phase of a new product line rather than just manufacturing what you already have running. So, it is a little bit of a perfect storm that also includes the many new products that we are making ready for shipment.

The next question comes from Jakob Marken from Danske Bank.

Same as the previous speaker. I had some issues hearing you during the call. So, I'm sorry if I ask any questions that you already mentioned.

No problem. I apologize for that.

So first of all, I was wondering if you can say any comments on the geographical sales split. I mean, it's the lowest sales to U.S. in a very long time. Is it fair to assume that a lot of the push deliveries was related to the U.S.? Or is there anything else happening there?

No, there was -- some of it is definitely related to the U.S., but also to Europe. So, it is a combination. But there was delays in both geographies. But from an order intake point of view, I think we have seen good order intake from both North America and from Europe.

And then I had a sort of question on the H-Series, which you talked briefly about. You said before that you expect a significant impact also from that in 2026. Is that something that still holds? And how is the sort of client feedback from that going?

Yes, absolutely. I would say that the interest has been very, very high for the data hubs. It was one of the stars of the show in London, and we are in talks with several customers and several programs about the hubs. So whether the orders will be in early '26 or in the later half, I don't know, but there's definitely real business potential going on.

And the last question was just on order intake size. Of course, a very strong quarter on small and medium-sized orders. And I think you said, if I heard you correctly, that you have been working on the U.S. Coast Guard order for 3 years now. I'm just wondering how many or if you could say anything about sort of the amount of discussions in sort of that magnitude in the U.S. Coast Guard or the Netherlands order framework. How many of those kind of discussions are you in currently?

Well, there are several. I don't want to put a number on it for competitive reasons, but there's definitely an interesting number of similar or maybe not similar to the Coast Guard, but at least similar to the Dutch MoD and others where we are in constant talks and preparation. So yes.

The next question comes from Daniel Thorsson from ABG Sundal Collier.

Two questions from me, please. First one, gross margin, 57%, a bit below ambition, but also expectations. So can you share any picture on the gross margin profile of the order book would be highly appreciated. And then secondly, do you see any hiring risks in the sector given that basically all competitors and players in the market trying to grow significantly right now. Do you see any strong salary inflation to keep employees or hire new ones?

Thanks, Daniel. First, on your last one about the hiring, no. I think given the fact that we -- where we are geographically, are not really under pressure from competitors. So I think we have not seen any issues with hiring, and we have not seen any high pressure on salaries or anything yet. So we're in good shape. And I think we have several means of keeping our employees bonus programs, some option programs, but also competition clauses. So I think they have a good mix of the tools to be able to retain our people, plus the fact that according to our surveys, people actually like to work here and stay here for a long time. So it hasn't been a big issue. Regarding the gross margin, well, yes, I can't really share the profile of the coming deliveries, but I can say that in this quarter, there was probably a couple of percent impact from currency and from the tariffs. So without that, we would have been close to 60%.

The next question comes from Yiwei Zhou from SEB.

Also 2 from my side. Firstly, Lars, if I recall correctly, you had like almost 9 large contracts won in 2019, and most of them have like 5 years term. Now we are almost finishing 2025. Could you give an update on those contracts? Is there like any retendering coming up or is ongoing or you have extended them?

Without having gone through them one by one, I would say the majority of them has just been prolonged, which they are able to do. So, the has just continued and prolonged the contracts even longer. So, I would say just from our feeling is that they are all still in force.

Are any of them are put up for retendering, if you can confirm?

Not at this point in time. We have had one which was Swedish police, but we got that as well. Again, so I can't recall any one of those that has been put up for retender.

And next question on EBITDA margin. You just raised the long-term target 20% floor. And when I -- looking at the first 9 months and you have to deliver an extremely good quarter in Q4 to meet the 20% EBITDA margin target this year. Should we assume that this year you will not be able to meet that target?

I don't know. That will depend, of course, on what happens in Q4. But I would say, as I say, when we look at the last 4 quarters rolling, then we are at 17.9%. So, we are close. And I think when we decided to increase from 15% to 20%, it is because we have been above 15% rolling for a long time. And therefore, it would make sense to raise the bar to 20%. That doesn't mean that we meet 20% all the time because then the target is too low. So, I think the target is still something we have to work for to meet. But Q4 will tell whether we do it in the calendar year. Again, for the rolling 12, we are at 17.9% or close.

The next question comes from Tom Guinchard from Pareto.

Two questions from my side. First of all, on the sort of split on the gross margin here going into Q4, we have more FX headwinds. Should we expect continued dilution on the gross margin for the coming quarter driven by FX? Or can you compensate with a positive mix here in the delivery schedules?

That would be my -- that would be my expectation that we can compensate with the product mix. Without having all details at hand, I would say, yes, unless the FX headwinds terms really, really there, then I would say, yes, we can compensate.

Perfect. And just a sort of follow-up on that on the tariffs here, SEK 4 million for the quarter. Any changes to that in relation to volumes moving forward? I mean, of course, depending on who you're selling to, but if we look at the U.S. isolated?

No, I think most of the sales we have to the U.S. is actually related to contracts where it is duty-free entry. And that also goes for the new contract with the U.S. Code of Conduct. So, I would still think that the majority of our revenues from the U.S. will be without tariffs. The tariffs are hitting us now when we are selling to public safety, police, law enforcement, fire parking and selling to individuals from our warehouse in Atlanta. And prior to the tariff discussion, we decided to move quite a bit of inventory over to the U.S. to try to compensate some of it. But I would say the majority of our sales in the U.S. will be duty free.

And just a final one on the 2 new frame agreements. Do you have any gut feeling on the timing of deliveries here?

Yes. I think regarding the Dutch MoD, it will probably happen within the -- I think the majority of the deliveries and the orders will come in the first part of the 5-year agreement. That's what we often see at least. When it comes to the Coast Guard, we are a little bit more new to this area. We think they have a huge need. They've been asking for this type of solution for many years. So, they are really happy that they now have it. But we also know that there is a logistical thing into this because you need to get boats into harbor, you need to install certain things and get people trained and so on. So, it's a little longer process of, yes, making training and installations. So, we'll have to see, but I'm sure that the need is very high among the Coast Guard, and we are quite sure that they will be spending a large amount of money relatively early into the 10-year period.

So you would assume '27 should see larger volumes from the Coast Guard order than taking a year to implement.

And '26 as well. I would hope '26 will also show good orders because once the lockdown is over or the shutdown is over, they should be going back to normal '26 buckets. As you know, they started in October, the new budgets in the U.S. So, we should start seeing orders already coming into '26 is my guess.

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

A few questions from me. Maybe first on the U.S. Coast Guard framework there. I think you mentioned that you had something like 16 competitors, if I understood correctly. Is that competitors have met before? Or it seems like a lot of competition for that order. Can you talk a bit about that?

Yes. This was information -- this was information that came from U.S. Coast Guard when they also was part of the press release. And we are actually not totally involved or informed about who all these companies were. I would expect that some of them might have been hopeful small start-ups or similar that was trying to see a foot in the door because I'm not really sure I can count to 16 competitors who no matter what I do. So, I'm not really entirely sure who they are.

And I think -- I mean, you kind of asked this kind of question before, but looking at framework agreements going forward, this was your new record size here. Do you see more of this kind of large long-term framework agreement comments? Is there any trend in longer-term, larger contracts in your sales pipeline, I would say?

They are definitely present, but I wouldn't call it a change. I think in general, the order sizes, when we talk about small and medium, these are the ones we would call large orders 5 years ago. And we saw the fact that we are now selling a much larger broader system. The average price for Intercom system with accessories is so much higher than what we used to sell for other system. So I think in general, there will be larger order sizes even for what we call medium size. So -- but Coast Guard framework agreements, there are more, but there are not that many of that size.

And as you highlighted, you have several new products with -- that seems to get a lot of interest. I mean if you look at the market -- the potential for growth from here, I mean, you do see high market activity. You have this new product portfolio with more products. What do you think is most important for achieving your growth target over the next 5 years? Is the new products more important than market growth? Or if you can elaborate on that a bit?

I think, as always, we have been driving market growth ourselves with our ever-increasing product portfolio. And I think the product portfolio we have now will, to a large degree, drive our growth, but it will also open up the market even further. Because, as I said, with -- for instance, with the solution for the Coast Guard, this is something that no one has had before. And there will be many customers around the globe that will be looking at this and say, hey, this is a totally new -- in the past, we used to have cables lying around the coast on the boat. Now we can have a wireless solution and move around free, and we can hear everything and talk with this very wit and noisy. And so, it's a totally new capability we haven't had before. So, I think to a large degree, we are driving the growth with our continuous development of our new products.

And maybe a final question. I mean, you do see high market activity. Could you also give up the kind of defense budgets? I think you said earlier that you hope to see some clear indication that these are affecting the demand. Do you see anything there yet?

Yes. I would say the frame order agreement we got in the Netherlands is definitely a response to that. So, this is part of a ramp-up in the Netherlands that now everyone needs to have a very, very good communications and living protection solutions, both on the ground and in vehicles. So absolutely, that's the first result of that.

There are no more questions at this time. So, I hand the conference back to the CEO, Lars Højgård Hansen, for any closing comments.

Yes. Thank you all for listening in. I apologize if the sound quality, the microphone has been poor. We will definitely make sure that this is corrected before next time when we speak in -- when we have our annual Q4 report. Thank you.