Invisio AB (publ)

Thank you and good morning everybody. Welcome to our conference call and for the Q2 report we have chosen the headline high levels of market activity continues. That is definitely what we see and which is also to some extent reflected in our reporting. So our financial highlights for the quarter is Revenues around 430 million SEK, order intake around 400, operating margin 14%, and the order book at the end of the quarter, 705. A couple of things have impacted us during this quarter. We had a little delivery of remaining third-party radio sales from last year with a low gross margin. We have also been impacted by the strong Swedish krona towards both dollar and British pound. And we have also had a little impact by the US tariffs. We'll get back to all of those in due order. The operational highlights during the quarter is first of all a significant order from a new large customer entailing our world leading new X7 India communication solutions. We have also this morning updated our financial target regarding the Avis margin. And as we have said several times, we see strong opportunities for Invisio due to the increases in defense investments that are ongoing and will be accelerating in Europe and within NATO over the coming years. So if we start with the revenues, our revenues are close to 430 million in the quarter. And of that, there was a small portion close to 30 million remaining of the radio order we got last year. So if we exclude that, the revenues was around 400. a little higher than last year, but then we had the currency effect mainly due to dollar and pound, as I said, and in comparable currencies, our revenue would be 450 million as compared to 390 last year, including the radio order. So we are quite content with that. On the order intake side, we saw an uplift from 245 last year to 401 in Q2 this year. And that takes the rolling 12 order intake to about 1.7 billion. This is led still by a good continued inflow of small and mid-sized orders and then one large order on top. I think this again illustrates the seasonality we have between quarters in our industry but on and on we are quite satisfied with the 400 million in the second quarter. The order book, turning to that, most of the order book as usual will be delivered within six months and this means that the Current order book of about 705 million is due to be delivered in the second half of 2025. We have a little bit remaining of the third party radio order. That's about 38 million still remaining where deliveries still are not confirmed. So by that we have about 670 million to be delivered in the second half of the existing order book. So gross margin is also impacted by a few things. Again, the third party radio deliveries were with low gross margin, just over 10%. So that impacted our gross margin somewhat. If we exclude that, the gross margin was close to 60 as compared to 63. Then we have the currency effect and then we also have about 4 million Swedish kronor in tariffs that is pulling the gross margin downwards in this quarter. Then there's the usual product mix sometimes. But in general, we are a very Pleased with this, we can see a good stable gross margin on our key products and also expect that to continue. We have a product portfolio that is almost now exclusively consisting of newly developed products and that will continue to support a strong gross margin going But as usual, fluctuations will occur between quarters. On the operating expenses, we are following our trend. Here again, there's a few smaller fluctuations between quarters related to hirings. Mainly, we have grown our headcount about 15% in the last four quarters. Some of that related to the acquisition of Ultralinks in the first quarter, but others also related to our expansions according to plan in primarily R&D and in sales. And we have a very impressive list of new products that have been introduced to the market within the last 12 months. like our V60 Generation 2 audio, data and power control unit, our new world-leading X7 In-Ear headset, the Invisio Link control intercom system app, our intercom switch, intercom loudspeaker, of ultra links and so forth and then many many smaller product variations and customer specific cables etc that are not included on this list so the development is level is really really high and we of course expect to get a good payback from this over the coming years Operating margins a bit lower than last year, mainly explained by the lower gross margin and a little higher operating expenses. But if we look at the rolling 12, we are at 19.9% at the end of the quarter, just shy of our new target of 20% EBIT margin over time. So just turning to that, we have had our existing financial targets for 10 years, and we have been reviewing them continuously, of course, with our board of directors. And now the financial target for the operating margin has been updated so that it is to achieve an average annual operating margin of at least 20% over time. the other financial targets remain unchanged. And this change on the EBIT margin reflects how we have been performing over the last years, but also our expectations to an increasingly active market environment where we think the future sales will grow at a faster rate than the total cost base. This is an evolution for the company. As always, our industry, our company performance should be evaluated over an extended timeframe as we see significant volatility between courses. I guess you are all very familiar with that by now. Inventories, inventory value a little higher than last year and now around 300 million. so this is a result of first of all expected deliveries with short time frames in the second half of the year we also did move a little bit of inventory to our facility in the us prior to tariffs being put in place but this is mainly for deliveries in the second half of the year. And inventory, again, is also almost predominantly standard products plus some key components. And we think this gives us a significant competitive advantage in the market environment that we have, where speedy deliveries is very appreciated. Cash flow, not too much to say around that. There's a couple of things impacting us more from an IFRS perspective. We have a new office in Lund, which I'll come back to. You can find the details in the cash flow statement. So operation wise during the quarter, we had a significant order from a new European customer that includes control units, cables and our new Invisio X7 in-ear headset solution, which is a new standard for comfort, weight and situational awareness and of course, hearing protection level where No other headset in the market can match the hearing protection levels that we provide with the X7. And this new European customer is of significant size, and we would expect further orders also to come from this customer over time. Deliveries of this first order will happen during 2020. and it's of course very important for us now to have statements with our new in-year solution and as always new products takes a bit of time to get established in the market but we've seen really good traction with the X7 headset so far and we expect this to be one of our front runners in the years to come. We have also expanded the capability of our intercom system with the new wireless link, Invisio Link, that we talked about also in the Q1 update. So our next upcoming trade show of a major size is in London in September, the DSCI, where the Invisio Intercom with Link and the rest of our product portfolio will be displayed in a updated marketing setup and an updated booth and we were very excited to be present there and talk to many of our European customers. So we have also added an intercom switch and a loudspeaker to the intercom family of products to give even more capability and functionality within vehicles. So as you are all aware, there are very strong increases in defense investments in Europe happening over the coming years. NATO have now agreed to the 5% GDP target of which 3.5% will be invested into equipment and capabilities. And as I said several times before, we of course expect this to be a driver and a business opportunity for Invisio for many years to come, along with the European Defence Readiness 2030 initiative, which will also mean high focus on defence investments in the European Union. So all of these are underlying strong drivers for our market. And as we haven't yet seen the impact of this, we have said also many times before, we expect this to happen from the later part of 2025 and onwards. Now, the tariff discussion and negotiations are ongoing. We do not have any more information than anyone else about where that will land. We have had a negative impact of about 4 million SEK in the first six months of the year. Historically, defense equipment has either been tariff exempt or having very low taxes. We don't know where this will end yet as negotiations are ongoing between the EU and the US. We are preparing ourselves for different scenarios. We have done that for quite a while and that includes also manufacturing in the US as well as other initiatives, depending on where these negotiations will land. We acquired Rachel Acoustics four years ago, and we have now fully integrated the operations of Rachel into Invisio. So we are one company with two brands. We are a modern high tech company in the defense industry. And in line with that, we are now operating our facilities and also preparing for growth in the UK. We will be relocating our UK office to a new, more modern facility in Broxley, just outside London. And this will happen in the second half of September. So in summary, we are pleased with Q2. It is in line with our own plans and expectations. We think we have reported good revenues and order intake. We saw a new large order from a new customer with future potential. But it is the long-term perspective that we always take. We continue to invest into the product portfolio and into the organization as we have done in recent years. And by that, preparing ourselves for the strong market activity leading into large upcoming spendings and giving us a solid platform for continued growth. So we are forward to the second half of 2025, where we will continue to strengthen Invisio and hopefully see a very strong set of results when we talk later in the year. So that will end my presentation and we are now open for questions, please.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Jacob Marken from Danske Bank. Please go ahead.

Yes, hello, guys. So just a couple of questions from my side. Firstly, maybe on order intake, you ended last year with underlying order intake that was very strong in both Q3 and Q4. And then you could say that it's been a little weaker here in Q1 and Q2 this year. I'm just wondering if you can give us any more color on that, if there's anything particular you've seen or if it was anything particularly strong in H2 or how we should think about that going forward?

I think the activity is really high, so there are good reasons to believe that the second half will be strong. Will that happen? Well, as always, we are depending on decisions in government organizations and so forth, and sometimes it drags out a little bit in time. But I definitely think that the underlying interest and demand for our solutions is strong. So I think there are good reasons to think that we will have a good year as we also had last year.

Yeah, okay. Because that was my follow-up on that one. You know, you sound very confident on H2 and I mean, you had a super strong H2 last year. I mean, is it reasonable to To believe that you can match the numbers from last year? Or how do you view that?

I think my standard answer to that is always that most of the time is, is it possible? Absolutely. Will it happen? Well, that will depend on timings. But the underlying interest and the pipeline is definitely there to make it possible. But we couldn't. run into delays of certain projects where it just takes it past the Q4. In some instances, it's also related to other equipment that the customer is buying. Sometimes they're buying a radio separately, but they want to have our deliveries same time as the radio. And then if the radio has a later delivery time, then we will be pushed out as well. So it's a little bit out of our control, But it's definitely not impossible.

Okay, perfect. Thank you. And then just a follow up on the, you told them about the intercom link. And I'm just wondering if you, how has the interest been this far? And also if you can give a short comment on the alterings acquisition, how the integration is going. Do you think that can contribute already in 25 or how do you view that?

Yes, the intercom and the link, the interest is really, really high. And we're just now ready to ship the first ready units to customers for testing and verification and hopefully soon getting into order phase. So I do expect us to be a very significant contributor to the intercom business over time. You can say that the intercom product portfolio that we have has developed from when we started. It was a rather simple system with one box. Now it is a much more complete system where you have an app for controlling the intercom. You have loudspeakers, you have switches, you have volume controls. So it's a much more flexible system for the user and now also with the wireless part, which really has created an enormous amount of interest. And as I said, the intercom and the link will be a key feature at our upcoming trade show in London in September. And I'm sure there'll be a huge interest. And also the Ultralinks is progressing. We will be renaming it to Invisio products. And that will also be one of the key product lines at our trade show in September. We have now done most of the internal setting it up in initial manufacturing and preparing the training, our salespeople and all the necessary things that needs to be in place. So we are ready and we have also the first quotes out, even for a little bit more significant than just a few units. So we do expect to see the first good orders before the end of 2025.

Okay, perfect. Thank you for the call on that one. And then just the last question on the tariffs that you mentioned. Could you say if it's related to, you know, military side or police or both?

It's predominantly related to the police side at this point in time. And things where we have shipped from Copenhagen to our facility in Atlanta and then shipped to police customers. So it's predominantly police customers, law enforcement customers.

Okay, perfect. Thank you. That's all from me and I'll see you in London.

Thank you. See you there.

The next question comes from Jalma Ahlberg from Redeye. Please go ahead.

Hi, thank you. Maybe first question on this new customer order. I think you said that you see potential for more orders there, but can you say anything on the potential size of the customer? Is this like an order for part of the potential unit or something, or is it... the full potential in this order?

No, it's not the full potential. I don't think I can quantify the size, but as usual, when we have a new customer of this size, there is a huge potential for upselling and adding the rest of our system, regular products, intercom, but also more headsets and control units over time. So I'm not able to quantify it, but I think there are... Normally, when we have a new customer like this, it's a long-term relationship where we can see that the follow-up orders from the same customer, just replacements and so forth, is at least 20% per year of the original order, but I think it could be more. So there is a high interest from many customers now to expand into buying more complete systems, meaning they start with soldier systems and then they add the vehicle part and the intercom part and so on. And in this very, very busy time, many customers would like to make it simple and buy a larger system from one supplier where we then take responsibility so that everything works

Right. And then kind of a general question follow up on that is, I mean, if you look at your sales pipeline or the market activity, is this related to kind of old customers buying more or is it also new customers? If you can give any sense of the mix there.

It's definitely a good mix. I wouldn't be able to put a number on it, but it's definitely a broader mix. And it's also, again, a much broader mix where sometimes a new customer could come into our pipeline because of the Ultralinks hub. And then when they see what else we have in the portfolio, then suddenly it becomes much broader than the first customer contact. So I think the fact that we have a very broad portfolio is making us relevant for many more different types of customers than previously. And this will only continue to grow with our growing portfolio.

I see. And you said that you're preparing for a potential more impact on tariffs. Do you think that we should... expect that the gross margin could be a bit more soft in the short term because of this effect or do you think you can still have the 60-65% gross margin if that's still relevant in the short term?

Yeah, I think short term nobody knows what is going to be the new numbers and we are just staying close to the different agencies here and in the US that are trying to find out what the new normal will be, but until we know that, there might be a short-term impact. But as I said, we have plans in different directions, but we don't want to put them into place until we know for sure what the new normal will be.

And also a question related to gross margin. I mean, you said third-party ranges can still be levered, but you don't know when, but could it still come more in 2025 or is it more in 2026?

Yeah, I think it is originally scheduled for 2026, but it could, of course, be pulled in if for some reason the customer changes his mind. But it is in the plan, it's scheduled for 2026.

And a final question just on the UK office. I mean, does that have any noticeable impact on OPEX in Q3 or Q4?

No, only in the terms of IFRS, paper money, but it's lease agreements.

All right, understood. Thank you.

Thank you.

The next question comes from Daniel Thorsen from ABG Sundal Collier. Please go ahead.

Yes, thank you very much for the questions here, Lars. My first one is, can you recall us how much third-party deliveries you expect to have in Q3 here from the radio order last year? And I apologize if it was already taken. I missed part of the presentation here.

No problem, no problem. So we don't expect anything in Q3. The remaining part of the radio order is... By plan, it is scheduled for 2026. So unless the customer changes his mind, it will be in 2026.

Okay, excellent. That's clear. And then the second one on the underlying gross margin just below 60% here. Is this a mix driven? Any limitations getting prices through to customers? Or are you seeing an increased competition for your products from the larger general suppliers to the industry?

No, it is three things. It is currency and it's a little bit of a product mix. And then it's the tariffs that has brought down gross margin a little bit as well.

Okay, that's clear. And then second one, first half year costs here are up around 25% versus last year. Is that roughly the pace we should expect for the second half of the year as well to be up around 25%? 25% versus second half of 24%.

It was a little higher in Q1 this year because of the acquisition of Ultralinks where we brought on eight, nine new employees and now we have the full effect of that. So we don't expect to have that increase in the second half of the year according to plan. So it's probably a little higher now in the first half.

Okay, that's clear. That's all for me. Thank you very much. Have a nice summer.

Thank you, Daniel. Same to you.

The next question comes from Mads Quiskard from DNB Carnegie. Please go ahead.

Thank you for taking my questions. I will take them one by one. First, coming back to your comments on the second half of this year being busy. And my question is, will this mainly be in Europe, given what we're seeing in the U.S. with budget costs? So one could assume that, you know, the tender processes have been delayed over there. That would be my first question.

No, we have a very high activity level in the US and it is also my understanding that the new so-called big bill that was now approved in the US actually contains quite significant increases in investments in military and law enforcement. our US team is very positive also for the second half of the year and onwards. And we have the same high activity level in the US. So it is broader.

Perfect. What we also see in the US is obviously major investments into military projects, which includes AI and so on. And also, so I think it was, two months ago that Meta took over the program Eagle Eye from Microsoft. Just to understand, do you see that as a threat to your underlying industry, or how do you view such programs in the US?

No, not really. I would more see it as a compliment. There has been different technological attempts related to heads-up displays and visors and other things. they still need to interface to the type of products that we have. And we have a good relationship with some of those programs and activities that are ongoing. I think they've so far had a little hard time making it into real products more than for training purposes. But let's see. But I think it is more an addition and a complement to what we do.

Perfect. Then my final question is more of a bookkeeping question, and it's on net financials. So I can see that you write in the report that it's due to a strength in SEC against GDP and USD. Is there anything else in the net financials, given that it's minus 30 million? And also, what should we expect for the second half? Because given my FX forecast model, I see the same strengthening of the SEC against USD and GDP.

Yeah, the 13 million that you are referring to, they are intercompany transactions. And again, back to IFRS rules and how you report that. So if I should try to give one example, for instance, when we transfer products, we transferred products to Atlanta. prior to the tariffs to try to avoid some of the tariffs. But then also when the dollar has a lower value before we sell the products, then we have to take that difference as a negative. So the 13 million are purely intercompany transactions.

Makes sense, Lars. Perfect. Thank you. Have a nice summer.

Thank you. Same to you, Mads. The next question comes from Adrian Elmland from Nordea. Please go ahead.

Hi there, guys. Good morning. Adrian Elmland here from Nordea. A couple of questions from me and also I missed parts of the call. Sorry, there's a lot of calls going on. But maybe you can just... I can follow up here on the gross margin. Should we expect further pressure on the gross margin in H2

Again, it is really hard for me to say that. At least for the tariff part, it's really hard to know what the outcome is. I think there is a plan for the EU to have something in place with the US before the end of August. Before we know what that means, then it's really hard for me to estimate. But I would say from a business point of view, I don't see any impact on on the gross margin. Of course, we won't know what the future of the currencies hold, whether that is a further decline or a strengthening of the dollar. But I think from a business point of view and from a sales price point of view, I don't see any pressure on gross margin.

Right. Could you in any way quantify how much of the decline in the gross margin is due to product mix contra FX and tariffs?

Of course, there was quite an impact due to the radio sales with 10% gross margin. So that gave a couple of percent, if I remember the number correct. So the product mix Again, we have a product mix depending on shipments to law enforcement with a lower gross margin or if we sell through a reseller or a system integrator or if we sell direct. And it is just a mix between those deliveries in a quarter that makes up. But in general, our gross margins, and especially with the newer developed products, products we have launched have very strong gross margins.

Okay, fair enough. Thanks for that. Secondly, what are the main reasons behind the increase in OPEX? Is this R&D or other types of investments?

It's R&D and sales and then the acquisition of Ultralinks.

Right, okay. And for the second half of the year, what should we kind of expect here in terms of OPEX increase sequentially?

I mean, we continue to add people both in D&D and sales where we see the necessity. Right now, there's maybe more focus on the sales side because the activity level is really, really high. And it's always a matter of... We constantly have a dialogue with relevant persons that could join our team. And then when the opportunity is there, we will hire them when it makes sense. So there is going to be a little bit of fluctuation, but it still follows our plan. But I think the first half was a little heavier due to the fact that we acquired Ultralinks and we brought eight people on board in one boat.

Okay, perfect. Thanks. That was all for me. Have a great weekend and a great summer.

Thanks, Erwin. Same to you.

The next question comes from Iwei Zhu from SEB. Please go ahead.

I thank you for taking my questions. I have two left here. Firstly, Lars, recently I heard the military vehicle manufacturer talk about massive order from European countries. Based on your dialogue with the customers and your partners, when do you expect to see this will start to benefit you? Is it part of your second half strong expectation or is more like 26, 27?

Anyway, that's definitely further down the line. Many of these, I mean, it's of course a massive opportunity over time with all these vehicles being built, but many of them will not decide for the communications equipment until they get much closer to delivery. And I think many of these vehicles, I don't have the details, but I think the delivery times are probably from 24 months and upwards. So that's going to be a very strong driver for us over years to come, but it's not for 2025.

Okay, great. Thanks. And I'm also curious on the updated EAPS margin target. It's more on the timing. I remember six months ago, you just updated market size estimates. So what's tricky that you're also doing the update on dividend margin? I mean, I know it is widely expected that the EBITDA margin should be above 20%, but still the timing is a little bit... I mean, there's nothing specific about the timing.

It is more we have an annual process with the board of directors where we look through the targets and of course we updated the addressable markets and we also now I mean, we had a couple of years during the pandemic where it was very unstable and volatile. But now we are back to a more stable track. And we can see historically for the past couple of years that we are higher than our recent target of 15%. So I think we are a company with a strong winning culture. So we have to have targets that we have to work very hard to achieve. And at least this is an update of where we are. But I think it's also natural based on the fact that when we can continue to grow our revenues with 20%, we will see a positive impact on the EBIT market and over time as well. So I think it's a natural step.

Okay, and I guess that 20% doesn't put the limit on the quarterly ebit margin. No. It's only on the full year. Okay, great. Yes, clear. Thanks a lot. I'll jump back to you. Thank you. Have a great summer.

Thanks, you too. Thanks.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. There are no more questions at this time. So I hand the conference back to CEO Lars Heugard Hansen for any closing comments.

Thank you all for calling in today. I know you have very busy times with many, many companies reporting. Our next call will be with the third quarter update on October 3rd. So I will talk to you all again shortly. 23rd, October 23rd. That is. Thank you and have a great summer all.