Invisio AB (publ)

Welcome to Invisio's presentation of interim reports January, March 20th, 24. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star 5 on their telephone keypad. Now I will hand the conference over to the CEO, Lars Høygaard Hansen. Please go ahead.

Thank you very much and welcome to the Invisio Q1 presentation, which we have named Strong Start to 2024. So some of the highlights of the quarter is that we received a record order for our intercom system worth about 230 million swedes. And along with that, we also received an order for radio systems for armored vehicles to a value of about 235 million swedes. And that results in a record high order intake of 670 million and an order book exceeding 1 billion. We also had a very significant product announcement or launch in the first quarter by our new AI enhanced Invisio X7 headset that I will come back to and that offers groundbreaking performance. Our revenues in line with Q1 last year and our profitability remains good. And as stated, now for many quarters, we expect market activity to remain high for several years to come. And we are well positioned to continue to deliver profitable growth. As said, we saw record high order intake during the quarter of 673 million, where of 438 million were our Invisio revenues, excluding the radio order. And of that, the intercom system was 230 million and the third party radio order about 235. What we saw and continue to see, have seen for quite a while, is that customers in these geopolitical uncertain times are increasingly favor solutions that are tried and tested. We benefit from that as the market leader and where customers know that what they buy from us, Invisio branded or Rayco branded products that have been in the market for quite some time and tested and tried in the most difficult conditions. Our order book remains robust and we have a strong delivery capability. Our order book now stands at 1 billion 25 million at the end of the quarter or almost 800 million if we exclude the radio order. And we estimate that about 80 percent of the order book will be delivered within 12 months. We keep a high inventory of standard products. We have always done that. And now it is also a little bit higher than what it has been traditionally, partly due, of course, to increasing revenues, but also reflecting some of the upcoming deliveries in the coming quarters. Rapid delivery has become a significant competitive advantage and we have the possibility and the financial stability to keep a decent inventory and be able to react quickly to customers needs. When looking at the revenues, as stated, they are in line with Q1 2023. And then you have to recall that last year's first quarter was the best in the company's history with very strong order intake, sales and profit. The first quarter last year was relative to a weaker 2022 where revenues were only 137. So we went from 137 to 311 last year and now 308. So you can say that we are reaching the same high level as last year and traditionally Q1, at least historically, has been a little bit of a weaker quarter. But we always deliver according to customer requirements. As you can see, we have high inventory. And as always, if customers had wanted, we could have delivered more in this quarter. But this is, as I said, according to what our customers have agreed to. So higher market activity, broader portfolio and our increased sales resources will enable continued revenue growth in line or above our targets. That's what we have planned for with our investments in the organization. Our gross margin still remains above 60 percent. And we have also communicated in the press release that the gross margin for the radio order we received will be less than 10 percent. This is a service margin for us handling the entire delivery. We expect this effect on gross margin and to the result in general to be visible in starting in the second quarter of 2024, where we will report both revenues with and without the radio order and the same for the gross margin. Our operating expenses, the trend, remain stable. They were largely in line with the prior quarter Q4 2023, but of course higher than first quarter of 2023. And the increase, as usual, is related primarily to our focused investments in R&D and sales in accordance with our gross strategy and the opportunities in the market. We can say that the headcount rolling 12 months has risen by 18 percent, while revenue has increased by over 30 percent and OPEC in total with 24 percent. So that is the general idea over time that our revenues will increase more than OPEC's and investments in headcount. Thereby, our airbit margin is at the satisfactory level. As stated, we are more or less in line with the last quarter of 2023. And we still see fluctuations in sales between quarters, whereas the trend for operating expenses and headcounts is more stable, as you saw on the previous slide. Therefore, there will be deviations in our earnings. But over time, we expect, as I said, revenues to grow more than operating expenses. Back to the order, the very large intercom order. It is quite some years ago since we announced and launched the intercom system for the first time, this very innovative portable product for communication in vehicles. And as usual in our type of markets and environments, it takes time before products are fully accepted and evaluated and budgets are available and so forth. So I think we already in 2023 saw good progress for the intercom system with revenues totaling over 100 million Swedish kronor. But now in the first quarter of 2024, of course, this is a record breaking order for the intercom system with 230 million. And what is also unusual here is that we have been asked to act as a prime contractor and system integrator for the entire communications system, including vehicle radios. And therefore, we will also deliver the vehicle radios to the end user, a total order value of 465 million. We expect deliveries to start now in Q2 and will be concluded by the fourth quarter of this year. The agreement, however, also entails a maintenance and spare parts package, which will be delivered during 25 and 26. So about one third of the total order value will be delivered in 25 and 26. So, as we said, the vehicle radio order will have an impact on the total gross margin as Synvisio will only receive a service margin for this delivery of less than 10 percent. But we will report that separately going forward. This is part of a trend where customers increasingly favor solutions that are complete and that are tested and proven in different situations. And while we might not think that this is going to be everyday business, that we deliver such a whole system, then I will not rule out that it can happen again going forward. Our new Synvisio X7 headsets is really a breakthrough in hearing protection and communications. Many years ago, we were the innovators of the first really tactical in-ear headset with the Synvisio X5 that is still a market leading in-ear solutions worldwide. And that has served us well for many years. Now for quite some time, we have developed and tested the new Synvisio X7 with key customers and it is ready for launch. And we have had it tested also with independent test houses in Europe to verify and accredit our hearing protections level. And here we have an industry first level of hearing protection superior to all other tactical headsets for dismounted use. We have levels which in technical terms, SNR, signal to noise ratio is amounting to 29 decibels. And this is about 10 decibels better than standard headsets in the market that are currently in use. What does that mean? It means a lot for the users because these 10 dB extra attenuation actually mean that a user of the Synvisio X7 headset can tolerate three times higher noise level than a standard headset. But more importantly also that you can cope with eight times longer exposure to that noise. It means that if you are allowed to be in a certain noise level or environment for one hour with a standard headset, then you can actually stay in that same environment for up to eight times longer, eight hours with the Synvisio X7. And I'm sure you can imagine what that means for the operability and the way that you are able to communicate and perform your duties with this type of superior performance. We are ready to deliver this new product. It is in manufacturing and we expect good sales from it already in 2024 and of course for many years to come. Apart from that we continue to see very high activity in our markets in Europe and globally as a high interest from both existing but also many potentially new customers. And we see a very high interest for solutions also related to armored vehicles and vehicle environments in general where you are exposed to consistently high noise level. We expect this market activity to be high continuously for many years to come and with our total portfolio including the Rachel Acoustics portfolio we are very well placed to continue. To profit from that. So with that I conclude the presentation of our Q1 report and we are open for questions please.

Thank you. First maybe a question on the intercom order. I went to give some more input on the delivery. I mean you say Q2 to Q4. Should you expect kind of a linear delivery there or will it be more in the first part of the Q1 report? I

think we will be delivering the majority in Q2 and Q3. So planning is still on the way. It is quite a sizable delivery. But the majority will be in Q2 and Q3.

Alright. And in the last report you mentioned that you see potential for several large intercom orders. Is this still the case?

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

Alright. And you mentioned that there is also spare parts for this delivery coming in Q25-26. So this order will first be delivered, the Q465 will be delivered and then you have one third of that in potential spare parts during the next two years. Is that correct?

The total is 460 something. So 300 something delivered now and then the remains in Q25-26 and it is not totally defined yet they have a possibility of making adjustments to that. And when we say spare parts it could be entire systems. It is not spare parts as such. It is actually more systems.

Right. And in terms of the order intake excluding this large order it was roughly 200 million maybe a little bit lower than the past few quarters. Is that the sign of a slower flow of smaller orders or just general fluctuations? It

is just timing and general fluctuations. I do not think that there is any, as we are trying to explain there is a very very high activity level in most parts of the world. But it is also very difficult to estimate exactly when specific orders will come through. As I have said before we think that some of the budget money that is being mentioned in many countries increased military budgets will not come into play until later this year into Q25. So it is very hard for us to see exactly when certain orders will be placed. But apart from that there are still fluctuations. So there is no slowdown in activity level that is for sure.

And you also talked a bit about the X7 headset here. And you mentioned that this improved noise cancellation. Will this drive upgrades from existing clients of X5 or so? Or is it more that you can reach more? Both.

I think that this will be customers that are already using X5 will definitely be looking at upgrading at some point in time when their contracts and everything else allows. And for new customers I think this is, we have also taken some of the, a lot of the feedback we received on the X5 first generation into improving. And putting more options into the X7. You can utilize it now with different types of passive protection. There is foam blocks, there are silicone tips and there are even custom molded variants. So there is a higher level of opportunity to adapt both to military and public safety, law enforcement environments. We have made it easier to put on and off. So yeah, just a number of performance improvements also with the utilizations of AI algorithms. So it's a second generation product. But not trying to say that the first generation was not good. And I'm sure that some customers would just stay on the first generation for a while. And it's also an opportunity for us that it can be combined in a good way with our T7 over the ear headset so you have the possibility of achieving double protection. With an X7 in ear and the T7 over ear you actually get double protection for really, really high noise environments.

Got it. And a final question Justin, you mentioned that, I mean you say that there is demand for systems designed for heavy armored vehicles and then the Ray-Cal has benefits from this. Is this kind of what has driven Ray-Cal demand or is it still growing demand for this Ray-Cal acoustic product?

I'm not sure I understood that question. Please repeat.

I mean, are you more relating to what has driven the demand for Ray-Cal products or is it something that will continue to drive the Ray-Cal demand with this armored vehicle? It will continue.

I think we've only seen the beginning of that. No, no, we expect to see a really good vehicle business for many years and definitely for our Ray-Cal portfolio to benefit from that. Absolutely. Okay. Thank you. Thank you, Alma.

As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the CEO Lars Høygaard Hansen for any closing comments.

Thank you very much. Thank you everyone for calling in and listening and look forward to speaking to you again after our Q2 report. Thank you. Bye bye.