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

Welcome to INVISIO's presentation of the Interim Report January to June 2026. [Operator Instructions] Now I will hand the conference over to the CEO, Lars Hojgard Hansen. Please go ahead.

Thank you. Good morning, everyone, and welcome to our Q2 and half year update. We will run through a number of important topics today. We have chosen a highlight or a headline for the report, which is strong revenues and significant strategic progress. We saw a good year-on-year revenue growth in the first quarter of about 20%. Our order intake was a little lower than expected, and it was mainly because of timing and also some impact from temporary U.S. procurement delays. We don't think that any of these orders have been lost, but they have mainly been postponed until later in the year. We have also delivered the final part of the radio order that we received back in 2024, and as previously, communicated, that had a little lower gross margin, which also impacted us in this quarter. We have during the quarter been approved by the U.K. MoD for a broader framework contract that for us is important as we consider the U.K. to be one of our home markets. Last but not least, we have our new products in the market, creating a lot of attention. And at the recent Eurosatory trade show in France, we also launched a new feature called INVISIO Drone Aware that created a lot of interest and attention. Turning to our sales numbers. As I said, our revenues grew by 20% compared to same quarter last year, and in comparable currencies, it was 23%. A lot of it was related to Europe, and of course, based on the order book that we had when entering Q2. A little bit delays also here on the revenues in the U.S. because of the previous shutdown of the government administration and especially also in Homeland Security, but we expect to regain that gradually during the second half of the year. The underlying demand and interest for our products is definitely intact despite some of these delays stemming from the U.S. Our order intake was a little lower than last year and also lower than our own internal expectations, but I would characterize that as the normal business environment with volatility and timing that we cannot always influence. Some of it has been related to the temporary U.S. shutdown of certain government parts, but also a reorganization of the U.S. Department of Defense that has been implemented with the new administration and where it takes a little time before everyone is settled in their new roles and responsibilities, but it should be all in place now. We still estimate that the demand remains intact, we have not lost anything. In fact, I would say that the budgets are still in place and the last quarter of the financial year in the U.S. is Q3, the upcoming quarter, so we already now see good activity in the U.S., and we expect to be able to see good order intake for the rest of the year. In fact, we have seen quite a good start to the third quarter in July, good order intake, both from Europe and U.S. So had some of these orders arrived just a little earlier, like in June, our order intake for the second quarter would have been somewhat higher. That's the nature of our business. It's been like that for the many years that I have been here. Our order book was about SEK 500 million at the end of the quarter, where the majority will be delivered in the second half. We still see that the ability to deliver fast or with reasonable lead times is a competitive advantage that we have and something that our customers value highly, so we try to deliver as much as we can within 6 to 8 months. The radio order that impacted this quarter, the radio order back from 2024 was now finally delivered in Q2. There is nothing left pertaining to this order in our order book, so that is all done. Gross margin, a little lower than last year, and there was an approximately 5 percentage point impact from this final delivery of the 2024 radio order, and we see that our new products in the portfolio is going to impact our gross margin positively over time. We have a very healthy gross margin on our own products, but it is also, I think, important to mention that INVISIO is now considered to some extent, also as a system integrator even at a maybe lower level than larger companies, but we are delivering systems. Sometimes it's entirely systems consisting of our own products, but sometimes we are also being asked to add other elements to an order to deliver a full system. The radio order was maybe an extreme that we will not see often, but there are examples, for instance, when we have been delivering Racal headsets for vehicles where the customers have also asked us whether we could procure a helmet and deliver together with the headsets so that they fit together and the customer don't have to do several tenders themselves, they can do it as one package. And in these situations, we are, of course, trying to accommodate and help our customers and that could potentially, for certain deals, influence the gross margin somewhat, but it doesn't influence the gross margin of the INVISIO products. It's merely a consequence of the fact that INVISIO is becoming a larger and a more important company in the communications industry in general. So in terms of our operating expenses, they increased about 6% from last year and also continued and were in line with the first quarter of this quarter. As we have said many times, we have a belief that we can continue to grow the company over many quarters, and therefore, we will also continue to invest in both new product solutions and in our organization to be able to capture and meet the market activity and the demand for solutions that we see from our customers. So regarding margins in the second quarter, our operating margin was 15.3%. It actually improved despite the lower gross margin. And for the last 4 quarters, we are at 17.7% EBIT margin. We have, as you might recall, increased our target for the EBIT margin from 15% to 20% last year, so we are well above the previous target of 15%, and we are now marching against or towards the target of 20%. So as always, it is important to evaluate our development over an extended time frame as quarters will fluctuate, and sometimes fluctuate quite a lot as we have seen in the past. Our inventory levels are still strong. We have a significant inventory to enable us to make prompt deliveries of larger volumes. Our inventory is not only finished goods. It is also key components and cables and other things that is needed to support a full system delivery. And in addition to our own inventory, we also keep inventory with our suppliers, so it is standard products and components that we have. And I have previously received questions about component shortage. It is not something that is affecting us at this point in time and we are working closely with our suppliers and partners to make sure we have sufficient inventory of key components that we need for a certain period of time. Cash flow, yes, not much to say. The decrease is mainly due to the fact that we have had a dividend payout in 2026. In previous years, we have sometimes had an exercise of employee stock options that brought cash back into the company. That didn't happen this year, so it was -- the cash flow was mainly affected by the payout of dividends. Our cash position is still good. Cash and cash equivalents at the close of the period are close to SEK 300 million. Now on the operational side of things, of course, I know many of you were present and visited us at Eurosatory in Paris, and thank you for that. And you saw yourself the high interest for our new drone awareness capability in the INVISIO T30. It is a feature that will be included in the product when we ship from the third quarter, and it's basically an ability for the user to detect drones earlier through acoustic signals. So if you are a soldier at the front and somebody is sending a drone towards you, you are given extra seconds to hear that there are incoming drones and you have a possibility to take countermeasures or to hide. And this is something that has really sparked high interest not only in actual war zones, but also for homeland security in many areas, so we expect this to be a key feature for our already market-leading headset, the T30. And this is again an example of how closely we work with end users in many countries. The feature has been tested and proven in combat environments and has been praised a lot, so we expect this to be a key feature, as I said. We also see that the interest for the T30 is very high. We are now manufacturing the product in one factory, but we are preparing a second factory to start manufacturing the T30 from -- already now in Q3, and therefore, we will have 2 factories up and running from the fourth quarter and onwards, and then we will be able to expand our volume ability in these 2 factories as we go forward, so this is an anticipation of significant orders for this new market-leading headset. In the U.K., we have been approved as a direct supplier to the U.K. MoD under something called the Tactical Communications Framework. This is quite a broad communications framework agreement. It covers other categories than our types of products. It's a broad system and the total potential value of this framework is GBP 8 billion. For us, the importance is that we are now able to go directly to the U.K. MoD. Whenever they put up new tenders, we can respond directly through our local company, INVISIO Limited in the U.K. And as usual, when it comes to framework agreements, there are no guaranteed order volumes or contract values in this agreement. It is a license to operate, and we can also see that there's very few in our category that are actually approved for direct deliveries to the U.K. MoD. So for us, this is another statement that we are well established in the U.K. with our company in Croxley outside London, and we are considering the U.K. one of our home markets. Eurosatory, as I have mentioned, was a huge success for INVISIO. I think it was the largest Eurosatory ever, both in terms of number of exhibitors and number of visitors, and I know a lot of you attended and also came to visit us and I think the defense sector has undergone a lot of transformation and development over the last 3 or 4 years for understandable reasons, and this area where we are has definitely developed a lot. There's now a very strong focus on tactical communications, strong focus on digitalization, interoperability, networking capabilities that will integrate soldiers, vehicles, sensors and unmanned systems in shared information and communication networks. And there's also a trend towards demand for solutions that can manage voice, data and also power while enabling effective system integration in complex operational environments. And this is where we are very well positioned with our system thinking from the hearing protection systems to the advanced control units with [ audio data ] and power to our new hubs, to our vehicle systems and intercom systems, we are really able to provide very broad and integrated systems. The growing use of drones that we saw, of course, a lot at the Eurosatory also continues to accelerate the need for better situational awareness and rapid access to relevant information on the battlefield. I think also that what is very clear is that while the drones are now dominating the battlefield, there is a full focus on the fact that they cannot be operated without people, so the foot soldiers, so to speak, are still very, very important as we see in most European countries, the number of foot soldiers are increasing, and we think that the interaction between drones and soldiers is a trend that we will see even more going forward, and this is also where we can contribute in some parts. So as said, there is a very strong interest in our new products and solutions, the T30 especially, which addresses a larger user groups of soldiers, both in special forces and in the armies, but also for segments in public safety like police, firefighting and coast guard, and we expect this to be a main contributor to our growth in the coming years. INVISIO Link is also creating a lot of interest where we have demonstrated this now to a number of new potential customers that are interested in seeing what we have done with the U.S. Coast Guard, but are also interested in seeing how it can be used in land-based environments. And our INVISIO H-Series, our data hubs is now fully integrated and up and running in the INVISIO system. We are receiving the first orders. We have quite a few units out for testing in different countries, and the system thinking, again, is a very important part of our offering and something that sets us apart from the competition. So we think that we are in a very good spot. We are the market-leading company in our industry as we see it with a lot of good prospects for the coming quarters. We are definitely going into the second half with confidence. Market conditions are still favorable, and there will be structural drivers to support our continued growth for years to come. We think we are very well positioned for continued growth, and while there will be volatility as we have seen for the last 15 years, there will be volatility from quarter-to-quarter, but I think we are over time, again, continuing the path that we have seen with the good growth and good profitability. And just wanting to repeat that the order delays we have seen in the first half is something we should be able to recover in the second half of the year. So with that, I conclude the short presentation of the second quarter, and now we are now open for questions, please.

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

I have 3 questions from my side, so firstly, here on the U.K. framework agreement, did you say GBP 8 billion in potential sales in this year? Or did I mishear you?

Yes, you misheard me. It is the total value of the framework order is GBP 8 billion, but that covers quite a lot of communication categories, so even though I would like to say that we can get GBP 8 billion, that is not the scope of it. The total contract, it is in different parts. I have no number on what the value potentially could be for us because it's not specified. It's just from the U.K. MoD said that the total value of this contract could go up to GBP 8 billion, but it covers many different categories of communication.

Yes, that makes sense. Fair enough. But could you perhaps give any sort of historical rate on how much sales you could get from this, from like previous framework agreements?

I don't know -- not at this point in time. I really don't know because this is a new thing they have done, just prequalifying. But it makes the -- what they're doing is they are prequalifying several companies, and that makes it a lot easier when they then go down to actual procurement and start sending out tenders for different things, then we know that we are already prequalified. We don't have to go through all the paperwork again. Then we can just focus on the technical requirements for the product solutions.

All right. That makes sense. The second question is kind of on the major deviation in the quarter, obviously, is North America, right? But if we look at the remainder of the group, could you give us any kind of figure on how the order intake performed versus last year? I'm trying to figure out how well the performance was here if we exclude the kind of U.S. effect here.

Yes. It is again difficult because it is a snapshot of -- I mean, we are -- we closed the books on the 30th of June, so it is actually a snapshot. On the 1st of July, orders arrived, so had we received those on the 30th of June, the picture would look different, so that's, again, why I say we have to look at it several quarters to see the full picture. So it is -- there is a number of things that are in the pipeline that is just about timing where we never know which month or which quarter it will end up.

Okay. Good. Last question from my side. I also noted a very strong performance here in Sweden, some sales of SEK 90 million. Could you give us any details on what you have been delivering? Or -- and is this anything that we should extrapolate? Or is this sort of a onetime effect?

I cannot unfortunately not give you any more details for several different reasons. I can only say that we, of course, are very pleased that we have a very strong performance in Sweden. Sweden now being a member of NATO and investing heavily in its capabilities. It's, of course, very pleasing that they are choosing INVISIO as a key partner, and I'm sure we will see a lot more business in Sweden, but I cannot go into any more details. Again, Sweden is our home market, so of course, it's very important for us to have a strong foothold here.

The next question comes from Yiwei Zhou from SEB.

I have 3 questions also. Firstly, you mentioned this U.K. MoD named you as a direct supplier. Does it mean that your partnership with your key distributor, MCL, now terminates?

Yes and no. In certain areas, we still have a relationship because of existing contracts, but it has always been our ambition, of course, that for as much business as possible, we would like to go direct because we do have 70 or 80 people in the U.K. We have our own company. We have all the capabilities now in the U.K. after acquiring Racal Acoustics and after integrating Racal Acoustics, so it makes sense that we, to some extent, do business directly with the MoD. But in certain areas, we will still work with different partners in the U.K. going forward also, but our main path is to do as much as we can ourselves.

Okay. I recall that you had a large contract a few years back with the U.K. army. Can you remind me if that contract was through MCL or it was directly a contract on your product?

Back in those days, it was through MCL, yes, correct.

So this year you have the contract with the U.K. army.

On that one, yes and no, I can't go into more details on that. I think this one was back in 2015, the one you referred to. I don't think that one is active at this point in time.

Okay. And second question is on the U.S., and you also won 3 large contracts back in 2019 with the DoD. And if I recall correctly, this contract yearly for 5 years and with 2 years extension. I asked the same question also last year, and I do it again here, and can you confirm if any of these contracts have been expired and if any retendering ongoing? And I'm asking because the DoD has this organization change, would this change impact your contracts?

No, it will not impact existing contracts, but there might be new contracts coming into place over time as we have also seen in other countries and which is a normal procedure. So as usual, I cannot comment on actual tenders or programs ongoing in specific countries. But I can only say that the U.S. market, of course, is extremely important to us as we traditionally have 30%, 40% of our revenues coming from the U.S., and we have a strong position. We still have contracts in place in the U.S., yes, and we also expect to get new ones going forward.

Can you confirm the 3 contracts you won in 2019 are still active?

Yes.

Okay. Great. Last question on the gross margin. You mentioned that the impact was 5 percentage points from the delivery of third-party radios. If I remember correctly, the remaining part of the radio order was 30 million after Q2 last year, and the service margin is 7% to 8%. I'm just curious that the impact is such big here in this quarter. And can you elaborate a bit?

I can only say that the deliveries under such contracts to support a country that really needs it is difficult. There have been many, many elements to this contract, including service support, training and many other elements, and all of those have had different gross margins. And it has also, to some extent, been a little unclear up until the last point what should actually be delivered under the last part of the contract, so I don't want to go into more details more than saying that we have now delivered all aspects of this order, and there was an impact here at the last part. So yes, I don't want to give you more details than that.

The next question comes from Daniel Lindkvist from Danske Bank.

So just a few questions from my side. I guess the U.S. recovery is in focus in INVISIO at this time, and then just trying to understand what we to expect for the second half of this year. So starting off with the U.S. budget year, how important is that to get things going over there? And is there a stress in the system to get the functional organization from their side as well?

Yes, I think so. I think the reorganization of the U.S. Department of Defense or Department of War, as someone is calling it, has been a huge task and the purpose has, of course, been to make it more efficient going forward. But when you do these type of larger reorganization, it takes a little time before everyone finds their place and new people are put in certain areas as responsible for things, also things that impact us. I think that we are well positioned because of the size of our team and the experience we have in the U.S. market. We are working around the clock to try to make sure we understand the new setup and understand where the responsibilities are and who we should talk to. And then, of course, on top of that, you can say that the budgets are not lost. The budgets have not disappeared. The budgets are very large in the U.S. also for our area and will increase also next year. So it's just a matter of trying to help the customers also the end users in the U.S. utilize their budgets and make sure they get as much as possible before the end of the financial year. So we have very good hopes that we will see good business in the U.S. for the rest of the year. But as usual, timing is crucial and things can easily move a month or 2, now also with, of course, the activities that the U.S. is involved in, in the Middle East will require attention from a large part of the army organization. So we are still a very small part of the U.S. defense budget, so we don't think we are that much impacted by that. But it could also be leading to opportunities for us. So again, our U.S. team, and we here are very we are positive about the rest of the year in the U.S.

Great. And then have you continued to produce so the lead times can be shorter in the U.S.? I mean, could you get an order in Q3 that will be delivered within the quarter even?

Yes. We have inventory.

Great. And do you now at this point, I mean, it's hard to tell naturally, but do you think that we could be in a situation where we have a normalized situation in the U.S. in Q4 and going ahead? Or should we expect things to take even longer?