Invisio AB

STO:IVSO

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's presentation of INVISIO Q1 Report 2019 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today on Monday, the 6th of May 2019. I would now like to hand the conference over to your presenter today, Lars Højgård Hansen. Please go ahead, sir.

[Lars Højgård Hansen, President & CEO]

Thank you very much. Good morning, everybody, and welcome to the presentation of our Q1 financials report.We will go directly into Slide #3, and as the headline states, we have a little weak start to the year. Our first quarter was weak in terms of sales. But after the closing of the period, we did receive a significant order from a new customer in the U.S. And we estimate that there are good prospects of further orders from this customer.We will go into Slide 4. And as I said, the weak start was shown in our revenue in terms of reaching SEK 67 million, a decline of about 20% toward last year. But as we have stated many times in the past quarters and years, this is quite normal for our type of business. It does show significant fluctuations between quarters both in terms of order intake and revenues. So this is an example of that.On a positive note, our gross margin was 61% almost. And as we've said recently, we believe our gross margin should be at least above 55% going forward. Now we are at 61%, which is attributed to a higher share of direct sales in our main market.We also have on the operating side continued to see investments towards growth initiatives in both market activities and new products, as we have communicated many times before. So all in all, this has an impact on operating profit which was significantly lower than the year before, but again, mainly because of the decline in revenue compared to last year.On Slide #4, our usual rolling 12 months overview for sales and order backlog. And especially on the order backlog, we can see that we are at the lowest level for quite a while. Outgoing backlog was SEK 48 million at the end of the quarter. But then again, as stated in my introduction, we did receive large orders after the end of the period. On Page 6, we have the highlights for the quarter and after the period. During the quarter, we did receive our GSA status that we have talked about already in the previous report and also in the press releases. Our GSA status will make it a lot easier for customers in the U.S. to buy directly from us, and we expect this to be a significant contributor to our growth in the U.S. over the coming years. The contract can -- is for 5 years but can be extended up to 3 x 5 years, so in total up to 20 years. We also did get an order from an existing customer for about SEK 29 million. And another significant initiative during the quarter was that we have now slowly but surely intensified marketing of our new intercom system that we will start hopefully seeing revenue from in the end of this year and then hopefully being able to grow that into a significant business over the years. We still also see good development in the new geographies. Even though large orders are still on the verge, we, as communicated before, do believe that we, in the not-too-distant future, will see a good-sized order from one of our markets in new geographies.After the period closed, yes, we received a large order from the U.S., a new customer, order value SEK 111 million. This is an order we have been talking about in previous reports and where we have been building stock. And therefore, we -- or inventory, we believe that a majority of this order will be delivered in Q2. We also did deliver a follow -- received a follow-up order from SFAB in the U.S. security forces of SEK 26 million. So the announced orders so far in Q2 have been quite high and still some time to go still in Q2.There was also a press release from us last week regarding a tender that we won in Germany. We are slowly but surely moving also into the police and law enforcement market. And we have been doing significant work in many countries, but especially in Germany, with a partner called IMTRADEX. And here, we won the first police tender that we think will be a reference for us in Germany and that can lead to other significant and larger orders in the German market over the years to come. So interesting progress there. Moving on to next slide. We, as said before, have our focus set on business expansion. We are continuing to invest heavily in both existing and new product categories. It is the highest investment level in our company history, but we are also putting a lot of effort into sales projects and our market activities. We have several new product launches planned. And it is also fair to say that the number of customer projects we are working on and processing is higher than ever. So even though we had a weak start to the year, we believe that the outlook for INVISIO is still very, very positive.Turning to Page 8. We, as I've said many times before, have a simple strategy based on 4 pillars that we continue to execute from and we will be following up on the initiatives in each area during the year.Finally on Page 9. Also, just a reminder to everyone that we are in a market that is driven by a couple of things that are definitely here to stay: the modernization of soldier communications, and also the awareness and focus on hearing impairment and hearing loss and the costs associated with it, both for the individuals and for society. We believe INVISIO has a very strong position that we have developed over the past 10 years and that we are also helping drive the market by developing new and innovative solutions that help the users, both in terms of protection but also enhancing their performance. So this market, we believe, is still in its early phase and we have a very strong market position, as I said. We believe that with the addition of our new intercom system, we also have a very interesting new market area that we will be addressing, and that will be contributing to our growth over the coming years.But as the Q1 report shows, there will continue to be uneven order flow and sales in quarters and also over the years due to the nature of the markets that we operate in.So that was what I had in mind when wanting to give you a short overview of how Q1 went for INVISIO. And we are ready to take questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Viktor Westman from Redeye.

[Viktor Westman, Analyst]

I -- my first question is about an update on the U.S. Marines. Has this money been reallocated to other business? Or is this still alive?

[Lars Højgård Hansen, President & CEO]

That is a very good question, Viktor. And I think I will pass on the answer for now since no official information is up. But as to my best knowledge, the program is still running.

[Viktor Westman, Analyst]

Okay. Okay. And just another question also. Have you seen any new numbers on hearing injury costs -- hearing loss injury costs? If they are any lower with the -- now that the TCAPS program has run for a few years?

[Lars Højgård Hansen, President & CEO]

We have not seen such number officially. And I think with -- the numbers that are available from the Veterans administration always lagged a little bit in time behind actual years. So not yet. But I'm definitely sure that we will see such reductions in hearing damages once we get a little bit further down the road. But we haven't been presented with them yet, no.

[Operator]

[Operator Instructions] We have another question from the line of Viktor Westman.

[Viktor Westman, Analyst]

Okay. It appears to be only me on the call. Maybe you could say something about the order from Germany, how long you've been working on it. And what kind of police force is this, is this special police or ordinary police?

[Lars Højgård Hansen, President & CEO]

It is a regional police force, so it's not traffic police. It is people that are more involved in areas where they can be exposed to high noise, so any type of -- yes, high noise environment that you could imagine. And as always, this has taken time. I think we've been working with IMTRADEX now for almost 18 months on different projects, and this is the first one that came to fruition in Germany. But there are many similar projects with police customers, not only in Germany but also elsewhere.

[Viktor Westman, Analyst]

And I assume you have more partners similar to IMTRADEX and that you're going after even more partners.

[Lars Højgård Hansen, President & CEO]

Yes, absolutely. And of course, it's either with our own resources or with partners. But in Germany, it makes a lot of sense to work with IMTRADEX since they have been on the German market for 30 years and have a very strong footprint with the customer. So it's an easy inroad for us to work with them as they are very well connected and also that our product portfolio fits very well with what they do.

[Operator]

We currently have no further questions. [Operator Instructions]And we now have a question from the line of Henrik Hviid from C Worldwide.

[Henrik Hviid, Portfolio Manager]

I was listening to the conference call on Harris, and they were pretty upbeat on the whole modernization program of radios in the U.S., and they talked about acceleration of radios over the next 2, 3 years. What is the lag time between Harris getting the orders from the U.S. Army, the Marines and you, and there is official tender for hearing protecting equipment? That was my question.

[Lars Højgård Hansen, President & CEO]

Yes. Thanks, Henrik. It will be, I think, a little different from customer to customer how big the time difference is. So I think it is, of course, very positive also for us to see that Harris is very upbeat regarding the possibilities in the U.S. And I think we have the same feeling. But we also know that radios are bought in one process and hearing protection equipment is bought in another process. So there is a time difference, as you say. We are not always fully informed about as many of these programs, especially also buying radios are not official, at least not to us. Then it's sometimes a little difficult to exactly know what the time difference is. But it is also clear that in order to utilize the radios in a good way, they need some kind of hearing protection device. So this is, of course, a positive for us.

[Operator]

[Operator Instructions] We have no further questions.

[Lars Højgård Hansen, President & CEO]

Thank you very much then. I wish everybody a good day. Thank you for calling in.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.