Norbit ASA (NORBT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our Q2 2025 presentation. Before we begin, I want to thank our customers and investors for the trust they place in us. And of course, all the dedicated teams in Norbit for once again allowing me to present a new record quarter. By delivering tailored technology to carefully selected applications across segments, markets and geographies, we continue to strengthen the foundation for further profitable growth. This momentum gives us confidence to raise financial targets for this year. We'll return to that in the outlook section. First, let's have a look on the Q2 numbers. As said, Q2 is a new record quarter, both when it comes to revenues and profits. Having a goal of remaining a growth company, we need to continue to deliver record quarters. The revenues came in at NOK 684 million, which is a 63% increase from the corresponding quarter in 2024. The EBIT ended at NOK 174 million, representing an EBIT margin, 25%. For the first half year, we have delivered a total north of NOK 1.2 billion, which is 46% from first half of 2024, up 46%, of course. The EBIT came in at NOK 302 million, also representing a margin for the half year of 25%. So a little bit from the segments. So in the Oceans segment, driven by strong sonar sales from the new VBMS X sonar that we talked a little bit about on the previous quarter. We have delivered revenues of NOK 239 million, which is an increase of 22% from the NOK 195 million we delivered in Q2 2024. The EBIT margin in the quarter ended at 36%. For the half year, revenues came in at NOK 472 million, which is an increase of 49% with an EBIT of 36% compared to 28% for the first half. So as mentioned, we're very satisfied seeing this new solar, this iWBMS X being well taken by the customers and being an important part of this growth. So when you look into the revenue split, in the categories that we've been using for a while. That the WINGHEAD sonar has increased for first half year this year to 104 compared to 70. All the other sonars, excluding WINGHEAD and excluding the Guardpoint for the underwater security has been lifted from NOK 205 million to NOK 277 million. Sub-bottom profilers being the Innomar technology, yielded NOK 50 million in revenues. In the security, we report NOK 10 million. As talked about earlier, we still see a lot of interest, a strong demand for new solutions for underwater surveillance. We see that our product offering is regarded relevant, but getting to orders takes much more time than we like. The good thing is that it's not that we're losing any contracts, it's just that the projects are not concluded. Yes. Connectivity, this is the second best quarter ever for Connectivity. Revenues up to NOK 170 million compared to NOK 101 million in Q2. And the main increase is on onboard units and on enforcement modules for tachographs. And with the top line getting up, the margin follows, so the EBIT margin is at 32% compared to the 20% in Q2 2024. When you look on the margins in Connectivity and Oceans, they are very much in the same scale. And this is the 2 segments where Norbit delivered own proprietary technology out in the market under our own branding. So we're expecting to be able to get margins on this level based on that. For first half of 2025, total revenues of NOK 316 million and a total EBIT margin of 31%, up from 25% in 2024. So looking on the revenue split. As you see, compared to first half '24, it's growth on onboard units, that's the tolling units used for passenger cars. Enforcement modules for tachographs is doubled following a change from the European Union in the demand for this kind of technology in trucks in Europe. And also enforcement modules related to satellite-based tolling has a good growth. The subscription and e-toll is at par with what it was first half of 2024. So final segment. As we've talked about before. Oceans and Connectivity, it's an Norbit proprietary technology. We use a big portion of our manufacturing capacity to create our own products, spare capacity has been offered on contract manufacturing terms to some key selected clients. As the demand for technology made in Europe has been growing and especially in the Defense & Security sector, we've seen that we've been able to position ourselves as a partner for scaling for some of these customers also. So it's by far, a record quarter for the PIR segment. NOK 293 million in revenues, that's more than 100% up from the same quarter in 2024. That being said, we are not fully satisfied with this because we are a bit short on what we were planning due to some delay in some incoming component. EBIT margin up to 20%, this is largely driven by a higher revenue base and operational leverage. And also getting -- if you look on the revenue split, so automotive, as we've talked about earlier also, we have chosen to reduce our exposure towards automotive and focus more on some key selected industrial, defense and security and others. So it helps also on the margin when you stop doing some business where there is a very bad margin and replacing that with more margin in the right scale. And of course, this shows the scalability. I think we've talked about investments in capacity. We presented that Norbit has installed Europe's fastest SMT line for assembling electronic components on circuit boards. Without those investments, this would have been quite difficult. Yes. What else? So in total, first half in the Product Innovation & Realization segment, NOK 454 million in revenues. EBIT margin for first half year on 18% up from 8%. We've also announced in the quarter an order from a European client in the Defense & Security sector at the value of NOK 125 million for delivery in Q4, 2025. Yes. And I've already commented on the split. So with that, I think I leave the floor to Per Kristian to go into some of the more details in the finance.

Thank you, Per Jørgen. I will spend some minutes talking you through the financial highlights of the quarter. And starting up to sum it up, we are delivering record high revenues and results in the second quarter and the first half of the year, reporting strong growth across the 3 segments and improved margins. In over 6 months of this year, we have delivered 90% of what we achieved in net profit for the full year 2024, showing both scalability and operational leverage as we grow. Cash flow generation was strong and cash conversion was equally strong, and we have continued to improve our working capital efficiency. Our balance sheet remains rock solid, enabling us to act on our capital allocation framework, and as Per Jørgen will elaborate on, we are increasing the financial targets for the full year. As for the second quarter, revenues came in at NOK 684.4 million, an increase of 63% from the corresponding quarter of '24, with all 3 segments contributing to that growth. EBITDA for the quarter came in at NOK 210.7 million, representing a margin of 31%, this compares to NOK 131.9 million in second quarter '24 and with the same margin level. Operating profit was NOK 174.2 million, translating into a margin of 25%. This compares to NOK 101.8 million and a 24% margin reported in the corresponding period of last year. So far this year, we have delivered an EBIT margin of 25%, that's up from 17% in first half '24. Net finance expenses were negative NOK 1.4 million, explained by net interest expenses of NOK 8.6 million and NOK 7.6 million in foreign exchange gains following appreciation of the euro and the depreciation of the U.S. dollar against the Norwegian kroner. Tax expenses were NOK 41.4 million, while net income for the period was NOK 131.4 million, translating into an earnings per share of NOK 2.06. In the second quarter, Oceans delivered 22% revenue growth and 11% adjusted for Innomar, which we acquired July last year. Sonar sales were strong, particularly in Asia. Europe and Americas had a low single-digit decline compared to the same quarter last year. Slightly slower sales in the U.S. were mostly offset by growth in other countries in Americas. After the introduction of tariffs by the U.S. administration, we have not seen any significant slowdown on our sonar sales to the U.S. and quarterly fluctuations must be expected as is quite normal in this industry. We continue to maintain our focus on maturing opportunities in the U.S., including protecting our margins. Oceans gross margin were largely stable year-over-year and in line with prior quarters. Payroll expenses increased NOK 14.7 million, of which Innomar explained roughly half of that increase, with the remaining difference largely explained by new hires and wage inflation. Operating expenses was up NOK 6.2 million, primarily due to Innomar, increased use of external consultants and activity-related costs. The EBIT for the quarter was NOK 86.7 million, up from NOK 79.7 million in the same period of '24. Connectivity reported a revenue increase of 67%, this was largely driven by more sale of onboard units and tachograph enforcement modules. Gross margin fell 2 percentage points due to revenue mix, while payroll expenses rose NOK 4 million. The EBIT for the quarter was NOK 55.2 million, up from NOK 20.8 million in the second quarter of 2024. PIR posted a significant improvement of revenues of 118% from the second quarter of last year, primarily driven by increasing demand from the Defense & Security sector. Gross margin was down 4 percentage points from higher share of high-volume manufacturing, while payroll costs increased NOK 6.7 million on activity level in manufacturing. The EBIT was NOK 59.6 million in the quarter, that's up from NOK 17.8 million in the same period of last year. Next, our balance sheet and financial position. Property, plant and equipment, including our right-of-use assets, increased NOK 14.9 million following investments in machinery equipment and lease additions of new production equipment, net of depreciation. Intangible assets rose NOK 17.4 million, explained by our R&D investments with high activity ongoing on the GNSS OBU in the quarter. Trade receivables were up NOK 12.8 million, explained by a sequential revenue growth, while inventories increased NOK 26 million in the quarter, on sourcing of components for the GNSS OBU, which is expected to be delivered in the fourth quarter of this year. Net interest-bearing debt stood at NOK 274 million at the end of June increased from NOK 191.8 million at the end of March, following our dividend payment of NOK 190.9 million. Our equity ratio stood at 50%, down from 52% at the end of March. After a structurally challenging period in the value chains in 2021 and 2022, requiring us to build significant safety stock. We have been dedicated and structured in our approach to increase our working capital efficiency. Our progress is quite clear and demonstrated by our nominal working capital level, which for the end of the second quarter, was at the same level as what we reported on at the end of 2023. This is even considering the substantial revenue growth we have observed in that period. As per the end of the quarter, our net working capital ratio stood at 20%, last 12 months revenues and 15% second quarter revenues annualized. Strong focus on inventory optimization, improved credit terms and sale of receivables have all contributed to this development. But as always, more work is yet to be done. And working capital will fluctuate given the anticipated growth and the delivery schedule. In the second quarter, we have several financing initiatives ongoing, which are partly also still ongoing. We extended the maturity on our revolving credit facility to 2028 in the second quarter. We were also able to considerably reduce the margin on all our loan facilities from the previous level, which was a blended average of 160 basis points, which lowered our cost of capital further. And we are currently also in advanced discussions to increase the limits on some of our facilities. We focus on strengthening our flexibility. Our balance sheet continues to remain rock solid. In the second quarter, our net interest-bearing debt-to-EBITDA ratio increased to 0.6 post dividend payment, and our liquidity position stood at NOK 725 million at the end of June. Lastly, cash flow for the quarter. Cash flow from operations was NOK 186.1 million, explained by an EBITDA of NOK 210.7 million, a net decrease of NOK 13 million in working capital, taxes paid of NOK 36.6 million and NOK 1.4 million in net finance expenses. We invested NOK 45.1 million in the quarter, explained by NOK 33.1 million in R&D investments and NOK 12.1 million in investments in machinery and equipment. The R&D investment level for this year is expected to be maintained in the third quarter, and the new guidance for the year is NOK 130 million to NOK 140 million from previously around NOK 100 million. While investments in machinery and equipment are raised to NOK 120 million for the full year, up from NOK 110 million previously. And this is due to build capacity to meet this year's increased revenue targets. Cash outflow from financing activities was NOK 207 million in the quarter, primarily explained by NOK 190.9 million in dividends paid to the shareholders in May. And with that, I conclude the financial part of the presentation, and I will give the floor back to Per Jørgen, who will give you the outlook statement.

Thank you, Per Kristian. So I think with the momentum we have now and I mean we were also challenged by a lot of investors after presenting Q1 that we should comment on the outlook that the outlook we had for the full year, NOK 2.2 billion to NOK 2.3 billion seemed conservative. We agreed. It seemed conservative. We wanted to have some more work to be done to really have something underneath when presenting the numbers. We'd like to have a certain control. So -- but I'm very happy that based on the positive outlook supported by high activity in all 3 business segments, that we now can communicate that our revised financial targets for this year is to deliver revenues in the range of NOK 2.5 billion to NOK 2.6 billion with an EBIT margin in the range of 25%, which is the level we currently is running. We also should add that we continue to explore value-accretive acquisitions to add on to the organic growth as communicated when we presented the 2027 targets. Looking into more short-term Q3. As you might recall, Oceans has a certain seasonality. Q1 and Q3 is typically slow quarters. And we're -- where Q4 is often the strongest. There's a certain budget flushing effect in Q4. In Q3, there is some holiday season in Q1. It's not the best for surveying on inland waterways and lakes, et cetera, there the northern part of the world, they're frozen. So these are some of the elements in the seasonality. We expect revenues to exceed NOK 180 million in Oceans in the quarter. And in that, it's not recognized any of this security project that we have announced where we're waiting for some export license prior to collecting the money NOK 75 million. So we'll tell you when that's sorted out. In Connectivity, we expect to deliver in the range between NOK 120 million and NOK 130 million. In the fourth quarter, we expect a pickup where we will deliver most of the volumes on this new GNSS onboard unit contract having a value of NOK 160 million. For the PIR segment, it's high activity, good leverage on the new investments. We expect to deliver in the range between NOK 220 million and NOK 230 million. And the outlook is that Q4 should be a new record for the segment. So we need people to not have the alarm in the morning at 6:00, it needs to be a 5:45 to conclude rest of the year. I think that concludes the official part of the presentation, but we are open to take some questions. So if there is some questions posted on the web.

First, let's see if there are any questions here in the room? No. Let's move on to the questions online. What actions have driven the successful development of Ping DSP post acquisition?

So I think the company is built on something that fits very well with Norbit DNA. This is a passion for creating technology that makes life easier for someone that needs to explore something. And so the Ping DSP sonars is typically a good piece of tailored technology for surveying in shallow waters very competent, a small team that created this. And I'm very happy to see that the synergies that we wanted in this acquisition, you saw that it was a good technology. It's a good product. That's an extension to help us broaden our product offering, and we wanted the Norbit go-to-market platform to help grow, and that's really been a success.

Looking at product mix development, is there any reason gross margins should decline in 2026? If not, are there other factors that would prevent EBIT margins from remaining flat or even increasing from 2026 onwards?

Yes. I think we haven't said much about 2026 yet. So I think we'll come back to the 2026, but we have no intention of taking measures to reduce our margins.

Are you able to provide any color on which segment you see the most scope for inorganic opportunities?

I think what we've said on that in the past is still valid that for inorganic growth on strategic acquisitions, we prioritize to acquire companies that brings either technology synergies or market synergies or both. We prioritize to do acquisitions where it fits with this carefully selected applications, demanding technology in some kind of niche market with good scalability in our scale. And we need to believe that we can have a good cultural fit. So I think that's the priority. So we don't acquire to get some more of the manufacturing capacity, et cetera, that's better growing organically.

Is the reduction in the revenues in the PIR segment related to the delayed component? Is the revenues delayed to the third quarter?

With this particular -- so the reference to the 15%, that's delayed to third quarter, yes.

The revenues are kept. It's a timing effect.

Could you give some guidance on M&A. How is the M&A funnel looking indication of size M&A preference for any BU specific for M&A?

So I don't think we have anything to share specifically on that. But as we've said before also, we have built up in-house capacity to work systematically on M&A. And we see that having industrial economists, living the Norbit life helping to explore and build up an interesting list of leads that we turn around and work with is quite helpful.

What is the current pipeline for Ocean security looking like?

Yes. Maybe you'd like to comment on that, Per Kristian.

Well, I don't think we need to go into details in specific when it comes to numbers. But what we can say is that the pipeline is surprisingly large. And as Per Jørgen said, these are rather large projects that take time to mature. And it's a combination of governmental projects or -- and private projects. And some of these projects are also linked to sort of a bigger project. So they're not necessarily only buying the surveillance sonar system but they're also buying other types of security systems as well. And we are maybe just a part of that, which means that a lot of decisions have to be made. And given that these projects are quite big in total also, it means that this generally take a lot of time to mature. So -- but I mean, we remain patient. We really believe that this market will grow. And I can also remind you that we didn't really have a good start to last year either when it comes to winning new security projects, but we announced quite big orders at the end of the year. So -- so I'm hopeful that we will also see growth in the security market in second half of this year and then hopefully you can grow that even further over the next years.

And maybe we could also say that we see especially strong interest in the Middle East and Europe. And it's not difficult to understand that either.

I noted your comments about investments, CapEx in Q2 and the full year 2025 in the report. What do you consider to be a normal CapEx over sales in percent?

We have sort of -- we have made some communication regarding our R&D investment level. And what we said it over the longer term, it will likely fluctuate between 3% and 5% of our revenues. When it comes to investments in machinery and capacity at the factories, that certainly depends on how much we are growing. I think this year, we have taken a lot of investments to build up our machinery capacity. And we will see next year what we will prioritize. But what I can say is that we have a fantastic return on those investments. So not being capital constrained and then putting our capital to work in terms of what we see are the best opportunities, and that gives us good returns is something that we will continue to prioritize.

Maybe a quick add on to that also, if you allow me. And that's -- I think, exactly as Per Kristian says, it's not capital. That is the limiting factor, but we really need also to see that we are able to manage all these projects. I mean what we're creating is not very easy. It's a very demanding technology we're creating. So you need to set up a group of engineers really being very clever engineers and you need to be able to manage that in a way, inspiring them to set new world records in creating stuff up to the limit of what the law of nature and the physics allows us. So -- and that's why with this high return on capital, why don't we double that? We have the capital. But we don't have the human resources suddenly to do a double. And we want to grow that steadily to safeguard the culture in this as well.

And so first half this year, our R&D investments is around 6% of our revenues. I think it's also worth mentioning that a lot of those investments are currently put into the GNSS OBU project, and that's not generating revenues for the first half. So I mean when we invest, do you expect that these investments will have a long-term growth. So -- but over time, it's a target of 3% to 5%, which we have said in the ambition plan towards '27. And then when we come up with a new plan, we will also set new targets for that.

That's a good question.

It is. Can you give some color on defense and security use cases for your multi-beam sonars?