Invisio AB (publ)

Good morning everybody and welcome to our presentation for the third quarter, which we have titled Strong Sales and Order Intake. The highlights are that our revenues increased by 40% in Q3 and by 28% in the first nine months of the year. driven partly from a clear recovery in the US where we saw a little weaker demand in the first half of the year but has now normalized. During the quarter we also signed a new long-term agreement with the Canadian Armed Forces that we believe will contribute to revenues for many years going forward. and we continue to see that the defense modernization and digitalization trends will support our long-term demand for the Invisio Advanced Tactical Communication solutions. Now turning to revenues, as I said, the recovery in the US supports our revenue growth. Our revenues increased by 40% to 408 million against 291 the year before. And in North America, it was 133 million against 85, so a good increase there. And for the nine months period, the increase was 28% reaching 1.35 billion Swedish kronor and this was strong sales across all of our markets and also or above the or across all of our major product platforms we saw a continued good demand for our new products especially the T30 headset deliveries are still Somewhat limited due to the ramp up that we are doing for this new product still. On the order index side we saw an increase of 18% and actually this is the highest level we have ever seen for a third quarter in company history. We reached 566 million Swedish kronor and again the US customer activity recovered following the first half that was a bit weaker. We also think that this is in line with what we said before that the earlier weakness was only postponed purchases rather than weaker underlying demand and this is also in line with what we have seen in previous years. As said many times, our business is volatile and fluctuates greatly between quarters for the different geographies where we operate. and the order intake will of course support our revenue generation in the coming quarters. The order book was 650 million at quarter end, a little lower than last year at the same time. I would say though that we are having a major focus on trying to convert order book to deliveries as fast as we can, but always in line with customer expectations and demands. So we are in very close dialogue with customers. and very often we actually plan manufacturing and delivers well ahead of receiving the orders when we know that a certain customer has a demand and is very likely to place an order with us we will commence preparation for components and manufacturing so that we can deliver with a short notice. You might have heard from other companies that sometimes the Defense organizations are complaining at this point in time about long lead times for military and defense related products. This is not the case for us. We are very capable of delivering with a very short time frame and that is a hallmark of how we operate. That's also why we constantly keep a very decent inventory of both components and finished goods. On the margin side, our gross profit increased by almost 40% to 228 million, and our gross margin was 56%, 1% lower than last year. Now, I have received a few comments regarding product margin, gross margin, so I'll try just to address that a little bit more in detail. Our margin was as a starting point a little above 60% and then there was a few things taking it down a notch. Tariffs is still present for some of our products, not all that we import into the US, but products that are for law enforcement and safety and firefighters. are subject to tariffs and that affected us with about 1%. Customer mix is something we have talked about many times because we do sell in many different ways. Most of our sales goes direct to users and customers but we also As we are growing as a company have a lot of partners. These are vehicle manufacturers, these are system integrators, these are radio manufacturers, and these are distributors of our products to law enforcement for instance. And all of these channels have different margin outlook and also depending on what type of product we are selling to that customer. So that will continue to fluctuate a little bit and the total mix in a quarter of who we are selling to will have some impact on the gross margin. In this quarter we estimate that the customer mix was about 1.5%. The third thing that we mentioned this quarter is electronic components. You might have seen from other companies also tech companies in general and defense companies and others that they are talking about some longer lead times on components and for us it's not a big issue. but we like to be able to deliver fast and that's why we are trying to secure components well in advance so we have enough for coming quarters delivery so we don't end up in a situation with delays in deliveries so that's why we Putting more components into inventory upfront to be able to match the expected deliveries longer term and in this quarter this has affected the gross margin with about 1.5 percentage point. And I would also like to say that the lifetime of NVIDIA products are normally quite long, we are talking, or the platforms we have that we have developed, they have a long life in the market of between 5 to 10 years, often when we have a contract with a customer. The components that we use many of them are standard electronic components that are also used by consumer electronic companies and others and it means that sometimes these components does not live as long as our platforms and this is something we handle quite normally and we can do two things either we can redesign the product a little bit to accommodate for a next generation of components or We can buy components of the existing sort and have them in inventory for the remainder of the lifetime of the product portfolio. So sometimes we do redesign, sometimes we buy components. And in this quarter we just decided to buy more components so we have enough for duration of a certain product platform. So there's nothing strange with that. This is how we have always operated. Turning to our operating expenses, these have been broadly unchanged over the past three quarters. Year on year we are up 16% and that is all in line with our long term Growth Strategy. Again, we are still seeing very high activity levels on the sales side and we are continuing to add resources in certain areas for the sales side, but also in R&D and in operations as in AI IT as we will get back to. Profitability year on year improved. EBIT margin up to 8% from a small loss last year. The EBITDA margin increased to 12.7. and the higher sales revenue levels and a relatively stable cost base supported this profitability. As you might recall we not so long ago increased our EBIT margin target from 15% to 20% and in looking at the rolling 12 months EBIT margin we are now at 18.4% so somewhere in the middle of the old target and the new target. The new target of 20% over time of course remains Inventory, as I said, we are aligning our inventory with expected future demand. As you will see, we increased our inventory somewhat. Some of it is also related to components, as we talked about, components that will be consumed at a later stage. We are now holding an inventory for future deliveries, but we are also ramping up on certain other products in anticipation of orders and deliveries into Q4 and 27. So this is how we operate and we, as I said, still believe that the ability to react fast to customer demands is a very highly We see a continued positive cash generation and the year-on-year decrease that we saw in this quarter mainly reflected the timing of invoicing and customer payments. Not much to report there. Turninging into some of the major activities during the quarter, I said we received a multi-year contract with the Canadian Armed Forces through a local Canadian partner for a broader tactical hearing protection and communication system. and it covers the entire Canadian Armed Forces, Land, Marine and Air Force. It's initially a two-year term with an optional of three years extension and the potential value is up to 450 million. Swedish Krona. It's a traditional framework agreement, meaning that no orders are guaranteed, but we expect to see the first orders from this contract very shortly. We continue to develop and see a high interest for our types of products and especially the fact that we are able to offer complete systems that operate both on land but also in vehicles and we had a high level of activity in the US at the recent AUSA trade show in Washington DC in October. We see a high focus on modernization and operational effectiveness both in the US and also in the rest of the world. And there is a highly growing interest in integrated solar systems and connected capabilities where Invisio can play a very important role for that purpose. Now during the quarter we have also appointed a new member of our group management. Alan Hunter has been named new chief information officer and will be responsible for leading Invisio Group's digital agenda. I think everyone knows that there is a continued high need for strengthening IT security and business resilience in general. But at Invisio we are also very convinced that The use of AI and automation is going to have a huge positive effect possibly on our business going forward in terms of both innovation and productivity throughout the entire business and being able to enhance the digital support for growth. We are sure we have found a very capable person here. Alan has more than 25 years of experience in IT strategy, governance and digital transformation, AI. He has worked with a number of large multinational companies in many different industries and will bring very valuable experience to Invisio. And he will join Invisio on December 1st. So, in summary for Q3, we continue to see favorable market conditions supported by strong European demand and the US recovery. I would like to say again, reiterate that in many countries it is still some of the basic demands that are highest on the agenda, air defense, air defense and air defense. and the types of products that we supply is a little later in the circle or on the purchasing line. In certain countries and others we are top of the agenda but in others it takes a little longer and that's I think the normal evolution that we will see throughout the rearmament of especially Europe that we are seeing currently. We see that the networked military and public safety operations are making secure tactical communications even more mission critical. It is really an important part of how both military and public safety will operate going forward. and there is a shift towards integrated and interoperable solutions instead of single product solutions. So in visio with our broad portfolio our products were very well placed to capture these opportunities with our portfolio products that continues to grow but also with a close Thank you very much.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Adrian Elmlin from Nordia. Please go ahead.

Hi Lars and Thomas. Good morning. I have two questions. Firstly, regarding the gross margin. Could you perhaps talk us through the sort of three factors behind the weak gross margins here and kind of how do you expect these to develop forward?