Norbit ASA (NORBT) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of NORBIT's Third Quarter Results. It's a privilege to be allowed to present the result of what our dedicated colleagues has achieved. As you will see, after the first 9 months of the year, we're delivering revenues at par with what we did for the full year last year and with nearly a doubling of the result. For us, this is encouraging and helps us to go to work every day and ensure that we deliver on the expectations our customers has. So then let's dive into the numbers. As you see, Q3, as always, is somewhat weaker than the other quarters. Still, Q3 2024 is the best Q3 ever for NORBIT. So we came in with revenues on NOK 505 million, and -- which is a 36% increase from last year with a margin of 15%, giving NOK 75 million in EBIT. And as I already said, for the first 9 months of the year, we are delivering at par of what we did for the full year last year, NOK 1.7 billion, up 43%. It's growth in all 3 business segments. with an EBIT of NOK 377 million, which is 92% higher than what we had for the same period last year. That represents a margin of 22%. Some other events, we've announced some new contracts in the PIR segment towards the Defense and Security sector, it's NOK 120 million contract. And I think in that announcement, we also said that we have had accumulated smaller orders, which also summed up to NOK 100 million. Yesterday, our eminent Board of Directors resolved extra -- decided to resolve an extraordinary dividend of NOK 3 per share. So looking into the different segments, Oceans has some seasonality. It's some vacation season in Q3, still nearly NOK 200 million, NOK 192 million in revenues. That represents an increase of 22% from last year. EBIT margin of 21% compared to 19%. For the first 9 months, we've delivered NOK 665 million in revenues. That's an increase of 40% and accumulated margin of 32%, which is a good increase from the 25% we had for the corresponding period the year before. And as you can see, having from Q3 2022 in NORBIT, quarterly fluctuation is expected. Some of what we deliver in the Ocean segment is high-priced, high-value products. Some units in or out of a quarter, some will affect the numbers in addition to the underlying seasonality. Diving into what's behind these numbers. So this is year-to-date figures for the first 9 months '23, first 9 months '24 and '25, showing that the Winghead sales is somewhat higher this year than it was last year, NOK 120 million and a very good growth in other sonars. And this is very much driven by increased sales of the iWBMS X, which we launched this year. I could remind you what this is. That's a sonar, which is fully equipped with all thinkable hardware features for such a sonar, and you can buy software features to upgrade according to your need. So it looks like our clients really appreciate this offering that they could buy a sonar, which enables them later to buy a software upgrade for additional functionality. So that's been good. Yes, sub-bottom profilers, NOK 66 million -- and yes, still on the security side, which we remain very positive for in the long run, it's lower than our ambitions, but ambition remains as high as it has been. Then the Connectivity segment saw its revenues at par with Q3 last year, NOK 108 million compared to NOK 111 million. The decline is due to some rescheduling of on-board units. And so, it's some of the revenues that we were aiming to have in Q3 that has been slipping into Q4. For the first 9 months, we have accumulated 70% increase of NOK 423 million, and I'll show you the split afterwards. And that's a margin of 27% for the accumulated year-to-date numbers. So -- and as you see on the revenue split, the on-board units, it's the toll tags for mainly passenger cars, it's somewhat lower than it was last year, but it's good growth on the enforcement modules for tachographs and the rest also a little bit growth or stable. So some status on the product, where we were awarded a contract April last year for making a complete new satellite-based tolling unit for trucks, so-called 4G-based GNSS on-board units. It's NOK 160 million contract. And this contract is for supply of units to the European leader in this electronic toll collection system, so toll for Europe. So volume production started in October. So it's then 18 months from being awarded this contract running through the R&D phase, industrialization assembly of a full robotic line and scaling up that. So I think it's a good job done from our colleagues. Ambition was to do it even in a shorter period, but it's satisfying to see that finally, we are running a high-volume assembly line in our Roros factory. This product is very much in line with our strategy to broaden both customer base and product offering. And we are eager to see how this evolves as the existing fleet of GNSS on-board units in European trucks is very much based on 2G GSM. And as we see European countries are planning to phase out the 2G GSM network, we see that there is a need of replacement of the existing fleet in addition to the underlying growth in the market. Segment Product Innovation and Realization, and also, I'd like to remind you, so NORBIT is a very much vertically integrated company, where we've believed in for many, many years that making the products doing the production also in Europe and in Norway in addition to designing the products is a good thing to do. And we've seen that some spare capacity in our factories. We've decided to offer on contract manufacturing terms to other technology companies, industrial technology companies. And we're for a selection of such clients, we are acting as a scaling industrial partner. And it's very satisfying to see that we have really been able to scale. Some of the investments we've done has really helped us. So we announced earlier this year that from April, we installed a new line for surface mounting of electronic components in our Roros factory. This is said to be Europe's fastest SMT line, and that's good. It's been running. And we have increased from NOK 114 million in revenues in Q3 '24, up to NOK 224 million. So it's a high increase. and a good margin improvement, showing the scalability in this business with operational leverage and a lot of the indirect resources needed to run this is very much shared between the different segments. So for the first 9 months of 2025, we have accumulated revenues of nearly NOK 680 million, which is 72% increase from the same period last year. It's an EBIT margin of 18%, which is double of the 9% we had for the first 9 months in 2024. And as you can see from this split, the defense and security sector is really the reason why this is growing. And as you can see also, so some of the clients in the automotive industry and some industrial, we have sort of not fully phased out, but we have not been very active getting new. And also, I think I've said it before also that some clients we've been helping to move to other factories to free up capacity for this new scaling partners. And capacity, I mentioned and reminded you of this investment of new SMT line in our Roros factory. We are also increasing the floor space of our Selbu factory. very good cooperation with the local municipality. So they are responsible for project execution and financing of this expansion, which is coupled to our existing plant. Completion year-end and a new SMT line is ordered and will be installed in this facility in January. So -- and this is very good. We see that it helps us even increasing capacity more. And we have an option to acquire ownership of the facility if we decide to do so. So with that, I'll leave the floor for Per Kristian to give you some more details of the financial figures.

Thank you, Per Jørgen. I will spend some minutes walking you through the highlights of the quarter. Revenues came in at NOK 505.4 million, an increase of 36% from the corresponding quarter of 2024, with Oceans and PIR contributing to the growth. Our Connectivity reported a 3% decline in revenues on a NOK 15 million postponement of on-board units to the fourth quarter. EBITDA for the quarter was NOK 114.7 million, representing a margin of 23%. This compares to NOK 86.6 million and the same margin in the third quarter of 2024. Operating profit was NOK 75.4 million, translating into a margin of 15% and this compares to NOK 53.7 million and a margin of 14% in the third quarter of last year. Net finance expenses were negative NOK 6.5 million, largely explained by NOK 8 million in net interest expenses, partly offset by foreign exchange gains. Tax expenses, NOK 17.2 million, while net income for the period was NOK 51.8 million, translating into an earnings per share of NOK 0.81. In the third quarter, Oceans delivered 22% revenue growth. Sonar sales were strong, particularly in the Americas region. We continue to see strong sales of the new WBMS X sonar platform that was launched earlier this year. On the negative side, sales in security and for sub-bottom profilers were slow in the third quarter. Oceans' gross margin declined 4 percentage points year-over-year due to lower sales of rental, training and consultancy services as well as obsolescence provisions. Payroll and operating expenses increased NOK 7.2 million on new hires, wage inflation and use of external consultants. In total, the EBIT result came in at NOK 41.3 million, up from NOK 30.7 million in the same period of last year. Connectivity, as mentioned, delivered a 3% revenue decrease. And compared to the last year, revenues declined primarily due to lower volumes of on-board units sold. And again, mentioned that deliveries worth NOK 15 million were postponed to the fourth quarter. The decline was partly offset by an increase in volumes sold of enforcement modules for satellite-based tolling units. The gross margin fell 4 percentage points on product mix and scrapping costs. Operating expenses, including payroll, increased NOK 3 million year-over-year, and the EBIT result for the quarter came in at NOK 16.6 million, down from NOK 28.1 million in the third quarter of 2024. PIR posted a significant improvement in revenues, close to a doubling from the third quarter of last year, primarily driven by increasing demand from the defense clients in the defense and security sector. Gross margin came down 1 percentage point, while payroll and operating expenses increased NOK 13.6 million on new hires, wage inflation and activity-related costs. The EBIT result for the quarter was NOK 40.5 million in the quarter, up from NOK 12.2 million in the same period of last year. Turning to the balance sheet. Property, plant and equipment, including right-of-use assets increased NOK 36.5 million in the quarter, and this is primarily due to investments in capacity expansion on surface mounting machinery. Intangible assets rose approximately NOK 9 million, explained by our R&D investments, while trade receivables were down NOK 16.5 million, explained by the sequential revenue decline from the second quarter. Inventories rose NOK 92.7 million, and this is explained by sourcing of components to prepare for the significant activity increase we expect in fourth quarter, including delivery of the GNSS on-board unit and defense and security-related products within the PIR segment, hence, referring to our outlook section, which we will come back to in a few minutes. Net interest-bearing debt stood at NOK 320.5 million at the end of August, an increase from NOK 274 million at the end of the previous quarter. Our equity ratio was 50%, which is on par of what we reported the last quarter. We continue to strengthen our liquidity position in the quarter by increasing our multicurrency overdraft facility by NOK 150 million subsequent to [ 30.09 ] so that the pro forma liquidity stood at close to NOK 830 million. Our balance sheet continues to remain rock solid with a net interest-bearing debt-to-EBITDA ratio of 0.7x at the end of the third quarter. Due to our strong balance sheet, financial position and the solid outlook, the Board has resolved to distribute an extraordinary cash dividend of NOK 3 per share for the financial year 2024. Considering we are currently below the long-term target range of the financial policy, the dividend distribution is also very much in line with the policy of returning excess cash to the shareholders. And the dividend will be paid out from NORBIT in approximately 2 weeks from now. Lastly, cash flow for the quarter. Cash flow from operations was NOK 1.9 million negative, explained by an EBITDA of NOK 114.7 million, a net increase in working capital of NOK 95.8 million, taxes paid of NOK 14.4 million and NOK 6.5 million in net finance expenses. We invested NOK 40.8 million in the quarter, explained by approximately NOK 30 million in R&D investments and NOK 11 million in machinery and equipment. The R&D investment level for 2025 is still expected to be between NOK 130 million to NOK 140 million, and there is no changes to the machinery and equipment investment guidance of around NOK 120 million for the full year. Cash inflow from financing activities was NOK 11.9 million in the quarter. So with that, that summarizes the financial section, and I will give the floor back to Per Jørgen for the outlook part of the presentation.

Thank you, Per Kristian. So starting this year, we had a target of delivering NOK 2.2 billion to NOK 2.3 billion in revenues. When we presented the first half year results, we raised that target to NOK 2.5 billion to NOK 2.6 billion. This remains our target for the full year. So we expect revenues in that range. And with that, we expect an EBIT margin between 24% and 25% for the full year. So as you see, Q4, as always, is a hectical quarter, and this is expected also for 2025. In the different segments, the 3 last months is typically the strongest in Oceans. Some of this is related to what we would call in "budget flushing". That's not very easy to predict, but it really happens. So we're preparing for that. In Connectivity, revenues is expected to increase sharply quarter-over-quarter, and this is driven by delivery of the GNSS OBU, which started in October. And we expect revenues in the range of NOK 200 million to NOK 240 million for this. And in the PIR segment, we expect to generate new records. The aim is to deliver between NOK 390 million and NOK 420 million in the third -- fourth quarter. And this is driven by the same sector, as I've explained earlier, which is very strong also in our outlook. So that concludes our presentation. And if there is any questions, we're happy to answer them.

So we have a few questions. One question from Olav at Pareto. Could you give some color on Q4 Connectivity guidance? And if this reflects some reshuffling of the GNSS on-board unit into first quarter 2026. Yes, let's take that. Yes.

So what we can say is that, as I mentioned, we started this project 18 months ago and the design phase until reaching approval took a couple of months longer time than expected, meaning that start of ramp-up of production also was a little bit postponed. So it's -- it's a good question. And it's probably easiest to say that some of the revenues in this contract is reflected in the guidance to be expected in Q1 instead of full in Q4. So it's a little bit annoying, but this is what happens when you have some delays. And maybe also add to that, when NORBIT are looking for new projects, we'd like to find things, which is very hard to design. Our engineers should struggle. So -- and so we did. We did struggle, but we made it. And why is this positive? It means it's complicated to make this and it gives some threshold for others to come easily afterwards. So I just want to add that.

Same question from -- a new question from Olav. The sonar sales look very strong this quarter. Could you give some color on which customer groups and use cases and what is driving this? And when we are speaking about Oceans, lastly, sub-bottom profilers, it has softer this quarter. Can you give some color on this product for Q4?

I think we don't have any split for the different subsegments in the guidance. But I think what we've seen is that the product WBMS X has performed very well. And as with other sonars, it has a wide range of different use cases. So I think this is what was in the Q3 also that it's a wide spread, some for ordinary surveying purposes, sea floor mapping. But we still see a very strong demand from different kind of autonomous vessels, both surface and subsurface vessels.

Good. Question from [indiscernible] at Arctic. What was the reason for the postponement of the NOK 15 million OBU order?

Yes. So this is partly late incoming material and partly some shuffling on capacity.

How much of the NOK 160 million GNSS on-board unit contract has been delivered as of now?

I don't think we've given any figures on that. And I think we will keep that -- of commercial reasons, we'd like to keep that a little bit low.

What is the most important drivers of the GNSS on-board unit product? In the medium term, is the 2G switch of the most important driver?

I think the underlying market need is good. But in the medium term, this phase out of the 2G is expected really to generate a strong demand. So I mean, the Switzerland has already turned off their 2G GSM. The major German network providers have announced that in mid-2028, they will turn off. And so, I think for the coming years, this is an important driver.

It creates a sort of a replacement need for the 2G units that is in the market.

Yes.

Could you share any updates on sales lead for the GuardPoint product? Progress seems to be -- been slower than anticipated.

Yes. So I think it remains as we've said in the past that it's a lot of sales lead. So the conclusions on the projects is not materializing as soon as expected. Our judgment is that this is the reason. We cannot see that the projects we are aiming for is lost, but there is some competitors gaining them. So we still think we are well positioned with relevant technology. So -- but yes, so we remain safe under pressure and continue to work hard every day to get these orders.

And lastly, any comments regarding the development of Innomar in the quarter?

Yes. So the revenues is somewhat weaker in the quarter than we expected. And looking into this, we expect improvement of that again looking into next year. So what we see is that the proactive activities in the market generates more interest. So the NORBIT global sales and market platform now carries the sub-bottom profiler offering from our daughter company, Innomar. So we're kind of we feel that this will increase and be a good addition to our continued growth also going forward.

Question on the dividend. So I will combine this, I think. Does the additional dividend suggest no M&A in focus? And did you consider any potential acquisitions before deciding on the payout? Or was the dividend your first priority? So I'd like to remind you that we have a financial policy of having a [ NIBD-to-EBITDA ratio between 1x and 2.5x ]. And as we reported in this quarter, we're at 0.7x, which means that we are below the policy. And for us also going into a record fourth quarter, as we see it currently, there is room for both. There is room to pay out the dividend, and there's also room to explore M&A. And as always, each individual M&A case has to be assessed. The capital structure of that investment has to be decided solely on the investment size itself. So it means that no M&A is not off the table. It's actually a very high topic on the strategic agenda. But to summarize, again, our balance sheet allows us to do both. So it's not either/or. So a question regarding PIR. How is the visibility in PIR entering 2026?

Yes. So I think as we've spoken about in the past also with several of our clients, we're working very closely. We're taking measures to secure material and secure scalability so we can act as orders materializes. I think if you look on the announcements we've done in the past and the lead time from we announce until we say we should deliver, which is quite narrow. That's an indicator of what you could say is the visibility if you look from an order backlog perspective. But the visibility for us to make decisions and to be prepared, having -- sharing and working closely with these clients is, for us, satisfying. But it remains that we need to -- we need to work together to prepare so that the time from announcing an order until we deliver is agile way of running NORBIT.

What is the potential for onboarding new customers in the PIR segment? Or are you expecting existing customers to demand all of the production capacity in the short term?

So for us, we are working to onboard new customers, but we're cherry picking when looking what kind of customers that fits into this. It needs to be some customers, where they see the advantage of having NORBIT as a scaling partner rather than just an alternative for any other EMS. And with the capacity buildup we've done and are doing, we plan to invite others also to take -- to join the party.

And then a question on our partnership with -- on mechanicals, Aursund. Maskinering and NOMEK. What are your ambitions here? And what's the driver that led you to invest in that partnership?

Yes. So 3 years ago, NORBIT acquired a small mechanical factory in Trondheim, running with 5-axis milling machines, et cetera, doing components to our sonars. So the founder of that company was about to retire and looking for some new owners, and we were by far the largest customer. And for NORBIT, this is important capacity to have. It's not very important for Norbit to have mechanical factories as part of our full operation, but it's important capacity to have. And when we saw how could we grow this and ensure that this grows with NORBIT. And it should not -- then also be in a position, where it could grow on other clients so that NORBIT is not too large part of the full operation. And that's why we saw this other factory in Trondheim, NOMEK, doing very much the same. And we saw that this is a good fit for some consolidation. And NORBIT is not in a need of being a controlling owner. We'd like to be a strategic owner to ensure that the necessary preparedness is in the strategy of this supplier. So we teamed up with a local investor. They have 51% of the shares and NORBIT 49% of this merged operation between the factory we had and this NOMEK. And we worked together now on an owner level to have some ambitions for this factory to lift out from regional focus to a Nordic focus. And I think that will be good for securing supply and scalability for NORBIT in the long term.

So a question on valuation multiples for potential targets. Does that make it more challenging to execute acquisitions? Well, I mean, it's not the valuation multiples or the expectations on the valuation multiples that necessarily makes us or sort of -- is the reason why we haven't announced an acquisition itself. I think it's more relating to the fact that we haven't found the right company to invest in. We have spent a lot of time trying to educate on what we are looking for and what are the criteria that needs to be fulfilled in order for us to do an investment. And it has to do with cultural fit with the target. It has to do with accretion, of course. So multiples are, of course, one of the criteria, but it also has to be relevant to the strategy that we are pursuing in which we are building a technology company. So it has to be related to advanced technology. And finding those companies is not easy. I mean, it's quite challenging. So we'd rather spend time maturing those ideas. And the list of ideas is quite long, but it's far from ideas to actually put your pen on the paper. So that's why it's taking time, but we will make sure to announce any investment when it comes, but not for today, maybe for tomorrow. Okay. When it comes to AI, is that something you use? Or can you start to use in your business? Yes. That's the question.

So AI is important in our business. It's important in our administrative operation of the business. So we've seen good advantage of using that technology, for instance, in the HR domain, where we have built routines, which is much more effective and self-service solutions, reducing the need for increasing staffing in that part. And in the products also -- and you can imagine working with image processing and target recognition, AI is very suitable for that. So yes, that's very relevant for us.