It is a quarter past 10:00 , and my name is Poul Jessen, and this is Danske Bank. I am happy to welcome Henrik Mørck Mogensen, CEO of RTX Corporation, and Mille Tram Lux, CFO of RTX Corporation. We will start out by a presentation of the third quarter report, and then we will go to a Q&A afterwards, which I will try to moderate. Henrik, please.
Thank you very much, Poul, and thank you for hosting us. Yeah, it's Henrik Mørck Mogensen, myself, and...
Yeah, Mille Tram Lux, CFO.
Yeah, and we will walk you through the Q3 report. I presented a short agenda. Just to give you, for those of you who maybe are new to RTX, a flyover of what is RTX and what do we do. Some key highlights and business updates. We brought a short insight into one of our business areas, ProAudio, to give some a bit more insight into what we do in that segment. Mille will lead us through the financial highlights for Q3 and the first nine months of this fiscal year. Of course, outlook. We hope that we'll have some good Q&As at the end. Let's kick off. At RTX, we are really experts in producing and developing wireless, secure, reliable communication. Communication fit for environments where standard communication doesn't cut it, which could be under the upper right.
It could be a firefighting team with a clear need to have efficient communication, being able to focus on the task at hand, fighting forest fires, as in this picture, without the luxury of mobile coverage or Wi-Fi. This is where our technology makes a difference. Or in hospitals, where the vital and critical patient data needs to be wirelessly transferred from patient monitoring to the clinicians, providing that technology. Also on the lower left, in concert environments, making sure that the audience gets a clear, high-quality audio experience and enhancing the entertainment product. In a business environment, as visualized in a warehouse, communication between employees benefits both the working environment and the efficiency of the operations as such. Just to give you some insight where our technology makes a difference. The setup here is one of the key assets of RTX is actually our customer base.
We've selected a handful here, which all are global leaders in their segments, having really strong brands, having a strong value both in their brand and in their channel to market with a distribution setup and sales channels, which we are leveraging actually to push our products with their brand globally. That's one of the key elements of our business model. Just to open the box a bit more about these partnerships with these global brands, which most of them we've had for decades. It's long-term partnerships. For example, one of our customers, VoCoVo, which is one of the market leaders in the retail segment in communication equipment for retail, when we design a new headset for them, it's really a collaboration. This is what we visualized here. We have the customers above the blue arrow and RTX below. Of course, VoCoVo, they are really close to the market.
They understand the needs of the shop floor. We also have insights, but we very much bring also technology insights. What are the latest technology? What are the best technology to use in different environments? We sit together, collaborate on product development. They bring very much market and customer insight, end user insight, and of course, also brand design. We bring technology, so we do the development, also integration in their backend systems during the testing. We allow VoCoVo, in this case, to do branding, marketing, sales, distribution, while we take care of all the technical aspects and the logistical aspects of onboarding, training, production, logistics around that. Of course, also making sure that the product is fit for market throughout the lifecycle through a roadmap-based product lifecycle management.
Just to give you an insight and also an understanding that the partnerships that we have with our customers, global leaders in their segments, is really a long-term partnership. This is a five to ten-year cycle, these product lifecycles. When we iterate this over time. That was the quickfire of what is actually that we're doing at RTX. Key highlights and business updates. First of all, looking at the report and the results for the first nine months of this fiscal year, really happy to see the trend both in revenue, and I think also to really focus this also this time on the improvement in profitability. We're really happy about that.
We've seen solid growth in our revenue and also profitability, very much driven by, which actually, again, the trends we've seen throughout the year, driven by strength in enterprise and also healthcare progressing, positively developing both on top line and on bottom line. Across the board, very much in enterprise, we are seeing stabilized demands. It's been a theme for the last handful of calls about the disconnect between the demand in the market and the demand and customers' orders to us. They've built inventory throughout the component crisis, and we are seeing we're very close to getting a stable demand, which, yeah, which of course is also profitable. Mille will get back on this. All this actually leads to that we in June, 23rd of June, we raised our guidance on all three parameters.
Now we are also, you know, getting into the final sprint towards the end of the fiscal year. We've been able to also narrow our expectations on profitability. We are targeting just around zero EBIT for the full year. We are, of course, you know, even though, you know, we are seeing what we feel is a solid result from the first nine months, we are also seeing the impact of a weaker U.S. dollar. I think when we started this year, the U.S. dollar to the Danish krone was around seven, above seven, and now it's, you know, in the lower six. I think it's 6.4, something like that at the moment, right? When we ask Fortune tellers in the banks, they say, you know, it's more like going perhaps even further down going into next year.
It's something that we have to acknowledge that this is a challenge for us, and we are seeing some impact of it in the results this year. Oh, sorry, in this quarter. All in all, a solid result goes on revenue and profitability, and happy with the trend that we're seeing in our business. Just walking through the three segments. Enterprise, this is where we do voice-over-IP telephone solutions, headset solutions for retail. It's products that's depicted on the left with handsets, infrastructure components, and headsets with customers like HP, Cisco, VoCoVo, just to name a few, I can tell. A market that is relatively flat from an overall perspective, but we are seeing, as mentioned earlier, also we are seeing that we have growth opportunities in certain verticals like retail. This is really, you know, we have a really strong position in this business.
It's around 75% of our business today. We have a strong position in the market where we also have the opportunity with our customers to attack these growth verticals. Again, yeah, nine months revenue of just short of DKK 300 million compared to DKK 228 million, same time last year, 31% growth, primarily driven, of course, by retail, but also we are seeing the normalization in key customer demand patterns, which has lifted the revenue compared to last year. We are continuing to deep building order book, so I have a good confidence in that. We are, you know, I think last time we also talked about having a new normal in demand pattern. The component prices also change the operations with some of our major customers that are really keeping their stocks short of. We are still working with the three to six month horizon.
Of course, also in this business, we are seeing the impact of the dollar exchange rate. There is a strong positive development in this part of our business. ProAudio, this is the segment where the business model is slightly different. Both in healthcare and in enterprise, we are doing full products. In ProAudio, we have really gathered the expertise and our know-how and our capability to develop secure, reliable communication and really embedded that into these modules that then we allow our customers to build products on. There are two main market segments addressed by this business. One is what we call intercom, which covers defense, first responders, firefighters, applications like that, really intercom, the team communications equipment. The second, which we call micro stage, is entertainment, which is more about providing clear, reliable sound in an entertainment setting. We have a handful of customers on that.
This business model really allows us to address different market niches with a very standardized product that allows a different level of scalability in the RTX operations. This is a transition that we started a couple of years ago, and we are seeing we are moving in that direction. We are also seeing, as the number is evident, a drop in revenue compared to last year. There are two aspects to that. The nine months revenue is DKK 56 million compared to DKK 92 million last year. One thing is the move from full products with a higher price point to modules that have a lower price point, but a more standardized delivery from RTX side. That is one thing. The second is that it has simply taken a longer time to onboard new customers and existing customers on the new way of doing business or the new business model.
That being said, we still have a strong belief that we are able to grow this business again to a higher level, both in Q4, but also moving into next year. The pipeline that we're looking at is that we believe there's a lot of good potential in that. Specifically, I'll go a bit deeper on the defense and the first responder segment. We are in good collaboration with a handful of customers in that segment, and we are seeing a good potential, and it is starting to move. It is, you know, we are expecting limited short-term impact on this because this business model takes a longer time than expected to really kick into the results. We have a strong belief on the long term that this is the right way to harvest this business or these, yeah, markets, addressing it by a standard product.
Healthcare is where we partner with Philips and supplying or taking ownership of the infrastructure that basically allows safe monitoring of critical patients. This is an infrastructure, communications infrastructure that really allows critical care patients to feel safe in them, that they are monitored and they, yeah, so they feel safe in their recovery. It allows clinicians to focus on core tasks rather than monitoring the patient itself. The value proposition for the hospital is actually freeing up clinical personnel, which really fits very well into the overall market dynamics or market trends that, you know, we are seeing in aging population. Aging populations mean more complex care. At the same time, we're seeing a scarcity of clinicians and resources to provide that care. Solutions like this that we're providing with Philips are really tapping into that market dynamics. This is what we provide there.
In healthcare, we've seen again a positive trend in our revenue. Nine months at DKK 52 million compared to DKK 29 million, same time last year. Positive development. We are building up. We are seeing revenue coming in on these infrastructure products that we are developing. We are building our order book on these products. I think the transition that we've also talked about, where we've taken over full product ownership from Philips and from the Philips product, taking over ownership is something that we are well working on. It's a long time transition to transition. It's a broader product portfolio that we are bringing over product by product, but we're moving ahead on that. That was the flyover of the different business areas and the highlights from that. Just a short dive into ProAudio in the segment, you know, on intercom, critical communication, covering first responders and defense.
The setting here is a team that has a very critical task. It can be first responders, police or firefighters that need to address a critical situation, fire or anything else, where communication is key. Interteam communication and coordination within the team is really key. They have a fast-moving environment where you have to be able to focus on the task at hand and not on the technology that allows you to communicate. The same thing in technical teams in defense. This is where the RTX value proposition on our technology really makes a difference. Our technology really ensures reliability. It's ready to go. You don't have to configure it. You can build it into your helmet or your headset, and the team or the communication will configure itself and make sure that it adapts to the team that are put together.
It really allows them to focus on the task. As some of you know, we are working with Invisio also to support them with our technology in their products. This is one of the cases that we are working with and developing. We also, on a long term, see a potential that can help drive the RTX business. This is also a market, and the dynamics in the market is that it takes time to build the credibility. It takes time to build the relations. We don't expect short-term impact on this or medium term. It's a long-term impact. We really believe that this is an area for us where the technology from RTX really has a strong value proposition. That was the overall highlights. I'll hand over to Mille to walk through the financial highlights.
Thank you. Yeah, we've just selected a few key points on the financials. Now, Henrik has given a good frame for the numbers that I'm going to highlight. Here we see the revenue development over the year. For the quarter, we see an increase of 10% quarter on quarter at constant currencies. As Henrik mentioned before as well, the currency has kind of, the U.S. dollar currency has hit us in Q3. In real numbers, we've got a growth of [3.5%]. Compared to last year, we have lifted the revenue by nearly DKK 60 million. This is really also something we've mentioned before that our business model works, and we start earning money when we land at around DKK 150 million a quarter. We are on the right trajectory. What we can also see in the development is that the distribution between quarters is becoming more equal.
Henrik mentioned the normalizing demand patterns. For everybody involved, both our customers, our partners who produce, a predictability in the quarter leads to lower costs. That leads to better planning. It leads to better production, lower or fewer up and down cycles. This is what we can see also in our gross margin, where we this year have maintained a profit margin across the quarters of around 50%, above 50% in accumulated. This is both a reflection of a larger share healthcare, where we've got a higher margin than the average business. It is a reflection of the planning, better planning, so that we've got lower indirect production costs. Then it's a reflection of focusing on the products and the customers, which are most beneficial for our gross margin. When we then look to EBITDA, we've got an EBITDA of DKK 22 million compared to - DKK 20 million last year.
Basically, from the DKK 60 million increase in revenue, we see DKK 42 million that hits the bottom line. As you can see from the previous slide, a lot of it is on gross margin. Of course, we have kept our capacity costs at a reasonable level, just with a small increase, trying to prioritize our capacity costs the best way possible. We've got three other financial highlights that we share. The first one is inventory, and we share that basically to understand the history from where we are coming from. RTX as a business model basically should not carry any or a little component inventory. A few years ago, during the component crisis, we leveraged on our good relationship with large global customers, which enabled us to secure some components, which was difficult for our production partners. Therefore, we built up inventory in order to secure revenue.
What we've done in the past couple of years is to then apply this inventory, component inventory into production. What we can see compared to last year is that we've reduced this component inventory by DKK 35 million, approximately DKK 35 million. We expect this to go even further down, probably around DKK 40 million on component inventory. We see the development in the right direction because, of course, we don't want to end up with an obsolete inventory. That's going as planned. The next point that we highlight is free cash flow. For every business, cash flow is important, and it reflects the health of the business, especially on operational results. We can see that impacting, and the change in working capital also has an impact on this free cash flow. That leads to our net liquidity position, which is at the end of the quarter, DKK 120 million.
Our capital policy states that we should have a solid cash, solid liquidity position. It's important because we've got, as mentioned before, large global customers. These customers look to our balance sheet and say, are they robust enough to withstand some nasty weather? Everybody knows that if you need to get capital, it's quite difficult. Therefore, we have set the level at DKK 82 million-DKK 100 million as a guideline. Reaching that DKK 120 million this quarter, we have discussed with our board and decided to launch a share buyback program of DKK 20 million, starting on Monday. We do that for the general objectives of a share buyback program, enhancing the shareholder value. We decided to do it safe harbor because that kind of supports the liquidity in the share over a period of time and eventually also increased the earnings per share.
The timing of the program is set to one year, but it is conducted within the framework that the safe harbor permits. That leads to the outlook for the current financial year, where we've got a bit more than a month to go. In June, as Henrik stated, we adjusted our guidance upwards. With this quarterly report, we have narrowed the guidance on our EBITDA and EBIT. The reason we've done that is with this short visibility, we've got quite a clear view on our capacity costs. As always in our business, the timing of the orders between one and another month, in September, start October, comes with uncertainty. Therefore, of course, the revenue and the gross margin leads to some. Therefore, we haven't adjusted the revenue gap or the revenue range. That concludes the financial numbers that we have decided to highlight.
Okay. Thank you. We will go through Q&A. If anybody has a question, just raise the hand, and I will hand over the mic to you. I'll start. Henrik, just moving up a level above. You've been there for six months now.
Yeah.
I know that you have been around visiting clients, suppliers across the world in the period. Can you give us some of what do you, or is it too early to say where do you want to hit the business? Is it continuing the strategy as it is, or is there any way where you want to change the business? You also, this summer, was out repeating that you still see the ambition of the DKK 1 billion in revenue without putting a time frame.
Yeah, yeah. So some perspectives on that. I spent some time, and that continues, spending time with our customers and our partners, and of course, also our own team in getting a deeper understanding of our strategy and our opportunities. In terms of where do I believe that we should take RTX , I still believe the core strategy, the core business model that we really have a core strength in secure, reliable communication. What I get feedback is there's a need for that value proposition in many different segments, both in enterprise, which again, the overall market is relatively flat, but it's also a steady market where we have a strong position. There are growth opportunities, and there is a need for our technology and our applications. The same thing goes in healthcare.
As we brought forward, I think also on a longer term, there's a bigger space for us, for example, in first responder type of applications. The basic business model that we take our technology with our partners and bring it into attractive markets or markets where we have a strong position, I think that is a very valid strategy and business model. Where I think we shall develop and also be even more sharp in both in what we do, but also what we communicate, is being more directly and closer to the market. We should always be close to our customers, but we should also have a deeper understanding and get closer to our market so we can be even more proactive in where we place our, so to say, bets, both in terms of investments in technology, but also where we invest in market development and customer development.
That is basically what we are doing at the moment. Getting back to the billion, we have an ambition to grow the company, and we have an ambition that we should grow. At some point, we also should cross a billion. What I'm trying to get to, getting a really strong understanding and strong foundation to say is actually not only the ambition, but also how are we going to do it? What are the steps? What are the markets that will drive us there? Right now, we actually, and the next month, we are investing in getting a deeper understanding of the markets where we see growth, like in retail, like in healthcare, is where we have opportunities at the moment. I believe we need an even deeper understanding of what is the real potential.
Actually, the most, for me, an even more important question, what does it take to get there? I think that is actually the core. I'm trying to also change the way we speak about this, saying, yes, we should cross a billion, but that should be a result of what we do and be a result of our ambition and our understanding and close collaboration both with the customers, but also a deeper understanding of the market. That's what we are building at the moment. Of course, we'll never stop doing that. We are really focusing very much on getting to that point where we have a more solid understanding, saying, how are we going to do it? What is the position? What are the market potentials that we are addressing? That's the route I'm taking. I hope that that was kind of some perspective on your questions.
Getting closer to the market, does that mean that instead of just talking to HP or Philips, you want to visit on a larger scale their clients to talk to the banks, the retailers, the hospitals?
Exactly. Get a bit better understanding of what are the real-world problems. It's about both in terms of being able to get maybe better prediction on what are the market dynamics that will affect our customers that then, in fact, will affect our business. It's also about being a better partner to our customers because we can better proactively, maybe with our insights. We are exposed to different markets, so we can more proactively bring innovation to our customers that will make them succeed even more in the market. If they succeed, we succeed. That's a business model. It's getting into that. For us, it's also about where we direct our investments. Right now, we are very much investing technology-wise, both in healthcare, but actually also in enterprise. You can see that in the balance sheet on capitalized development costs. This is where we're putting our investments.
I'm pushing ourselves to get an even better understanding of the market so we can kind of triangulate the input we get from the customer, our own technology understanding, and market needs.
You are raising your capitalization and thereby doing an investment to yourself. Is that because you see an opportunity by interacting with the end clients, or is it because you have agreed with your clients that now you have to come up with a new product so that you have more or less a contract on hand? You have to come up with a product or module or whatever to deliver on, or are you investing in assuring that if we do this, then we can go to the clients and sell it to you?
It's kind of a mix at the moment. You know, we need to get deeper into getting a better understanding and doing the market research before we make any at our own stakes bets. Right now, as you say, in enterprise, it's very much based on our history, understanding. This is a strong business, 75% of our revenue, and we have a strong position. We want to have that position for many years. Of course, we need to reinvest in the platforms. We are also relevant in three or five years. That's what we're doing on that. That's really investing in the core platform. We're continually being able to develop products for our customers in enterprise. On healthcare, it's a bit different because based on the agreement that we have with Philips, we are actually taking over product responsibility where we have to develop our own product roadmap.
This is very much where we are investing. There you can say it's a bit of a mix because, of course, we have Philips backing us with a sales channel, but it's actually where we are investing in our own products that we can bring to the market. Of course, Philips gives us some safety in the years to come.
If we go five, six years back, RTX had a period where you announced a lot of frame agreements with existing and new clients. For the last four or five years, the communication was that there's no need to go for new clients because you have huge opportunities by developing the frame agreements that have been signed earlier. Are you supporting the strategy or not being outbound and finding new partners, or should we see that you now try to sign up more clients?
I think that really depends on what the market segment that we're talking about. If we're talking about enterprise, with the customer portfolio and the framework agreements that you're talking about, we actually address a large portion of the market. I think the development in that space, maybe taking retail aside, is maybe even expanding our interaction and our partnerships and our deliveries engagements with our existing customers. Whereas ProAudio and healthcare is probably a different story. In healthcare, our focus is very much to build the business with Philips. It's a clear target that there we want to onboard new customers over time, bring our technology to them to broaden our market coverage. In healthcare, it's a bit different story than in enterprise.
The business model in ProAudio really entails us to get new clients, to bring our technology in terms of our modules to the relevant markets with customers where our technology makes sense. The answer is a bit different. My answer will also be it depends on the business. It depends on the market.
If we then move.
Poul, we have a question from the audience. We have a question from Jens Hansen. Jens Hansen, go ahead.
Yes, thank you. Thank you for taking my question here. Thank you, Henrik and Mille. I have three questions for you, if that's all right.
Sure.
The first one, it's about your segments. I would like to know a bit more how interrelated they are. If you, for some reason, decide not to proceed with the ProAudio segment, what kind of impact would that have, if any, significant on the two other businesses? Also, to your segment note with your EBITDA, if you could put some words about your allocation keys for your headquarter costs, etc. Is that based on revenue, or how should we consider that?
Yeah. If.
Question, I think.
Did you have a third question you want to, or would you take that afterwards?
Yeah, we might take that afterwards, if that's all right.
How interconnected are they? What we also have investment in and what we are really pushing in our technology is really to have a joint platform because the core in RTX is really the wireless communication and the technology. There is, of course, a lot of the same technology elements. We're trying to build a stronger technology stack that we can use both as part of the enterprise, the ProAudio, and also even healthcare that we are utilizing. Product-wise, they are not that interconnected. On the technology stack, we are utilizing many of the same components across the different segments. Business-wise, they are not that connected and interrelated. Yeah. Yeah.
Okay. Thank you.
Answered some of it. In terms of allocation, I think you could.
Yeah. In terms of allocation, as you probably know, last year is the first year where we did this split on where we allocated all the costs to the three segments. What we have done is that we have taken the costs that we can directly allocate to each of the segments and allocated those directly. The remaining we have allocated on the expected revenue split. That also means that with us working more on the profitability on each of the segments, we will, of course, continuously work on more direct allocation of the costs to each segment, in terms of their usability.
Okay. Thank you, Mille. The next question, it's about your healthcare business and the frame agreement with Philips from November 2023. With such frame agreements, normally, you know, there are some uncertainties about volume. What I'm basically after is how you kind of work with that customer. I'm after, I mean, how sticky is that partnership?
On a stickiness scale, I would say we have a good collaboration with Philips, and there are commitments in the frame agreement about orders for a number of years, really to support the transition of full ownership to us. It is balanced, actually, in the frame agreement. The major potential for us is really to develop that both in terms of additional sales to Philips, but also potentially to other customers in that market. To put it frankly, the Philips system is based on this technology. We've developed it with Philips, and we've taken over the ownership. I would say the stickiness is fairly good, at least for a good horizon to support the transition of the products to us.
Thank you. One last thing, if that's all right. It's more about something for you to consider. It's about your guidance for the coming year. Since you are looking at your business for each of the segments, it would be very good if you could also put some guidance on each of your segments and how much you expect to capitalize for the costs. That's just an input you could consider.
Thank you.
Okay, thank you.
Yeah. Well.
Just to follow up on the Philips commitments, if you move back to the DKK 1 billion stated back in 2023, it was said that 20% or so or more of the DKK 1 billion should be healthcare. When you reach the DKK 1 billion, is that when you talk about the commitments, is that covering that kind of level, or does that have to have on top revenue in the form of Philips outperforming all new clients involved in and 20% even at that time?
DKK 200 million.
The Philips commitments don't fully cover that level. That's actually what we are doing. I'm a bit hesitant also because right now we are doing more in-depth work on both the market and the market potential. To be more clear, you know, because the Philips agreement is a good way for us into this, we have to build on top of that. That is our ambition. The actual split and the actual ambition is something that we are diving deeper into. Hopefully, we can be more factual and more direct on that at a later point. The DKK 200 million, a good part of that is covered by the commitments, but not fully.
Coming back to the question about the ProAudio profitability, it's a quite heavy loss making right now. If I do assume that the cost base you have for headquarter cost, central cost last year, and do a revenue share contribution into ProAudio now, then ProAudio should be operating in itself about break even on EBITDA level, meaning that revenue shall not increase much before it's contributing positive to the global overhead. Is that correct?
That's correct. I think what Henrik said before as well, this year is also quite impacted by not much full product revenue, still support on the full product, where now what we see going forward is that we've got module business where there's considerably fewer internal resources bound to that because you can use the same resources for all the clients. Yes.
If we do go to enterprise and the current market, not necessarily sell out, but your insight into future revenue, you say you have a very strong order book for now. A quarter ago, you said that one client or a client had normalized and some hadn't. Now you talk about more of the larger clients having normalized. If you take it on a group level, how much of the revenue within the enterprise is back to normal and how much is still reducing inventory? Do you expect normalization from the next financial year across the line?
I think going into next year, we are going to expect that it's a fully normalized fiscal year. I think that's what we are looking at.
If I may supplement, the normalization, we are going to a new normalization. We still have more or less the same top, at least the same top eight customers. Their ranking in the top eight is different. When we talk about normalization, we also talk about the predictability for what they expect for the next six to nine months when we know that they are starting to hit that. We are starting to see a more even flow, and that's a new norm. We are not going back to the same, but we see a predictability. We see a steady flow. We see on some of them a growth trajectory.
My guess is that the goal is to become one of the larger clients, at least for now, given the growth that they have. Just to have an indication about how the potential is of that client, can you say something about when they sell a solution, are they selling it on Bauhaus and Lidl are using it? Are they selling it on a regional or by shop or by country, or is it a global agreement that they do?
I think the normal for them is by group, maybe by country. As you saw, they just onboarded Spa, but Spa Denmark.
Okay, yeah, it's just time and person.
I understand that's their normal way of onboarding new customers, typically in kind of a tender-like setup. It is, of course, their predictions and their businesses are also dependent on, you know, do they win Lidl or do they not? It is project sales from their perspective also. By country, by group, I think that's the norm.
ProAudio, as I understood you earlier, you expect that we are right now at a revenue thrust, meaning that we are heading for growth next year.
That is definitely our ambition and also our intention is really to see this. We should see the business picking up from here. As you know, the math that you did is also pointing at this. We're trying to hit a scalable business model that doesn't pull as much on shared resources because we are selling as shared products. We should also see profitability picking up in that business.
Does that mean it's because those who are having a full product are at the same level as the enterprise, that they have completed the inventory normalization, or is it because the main part of the business now is modules?
The last thing, the main part of the business is modules.
You are almost completed with the exit of the full product part of the business.
Yeah, I think, just to add, I think a positive story also to that, we've actually succeeded with a number of these customers. You know, when you change the business model, you risk losing customers, right? We've actually been able to keep the customers and change the business model within, and then, you know, change our partnership. I think that's actually a very strong point that we've been able to do.
Okay. And.
Our service is building up the client portfolio in that segment, right?
To the interesting part, the healthcare, because that's where the margins are right now. If I looked at the Philips Q2, and they say now, just to make some quote, demand for hospital patient monitor is remaining strong. Significant partnerships have been signed in the U.S. recently and see solid demand currently. Can you say something about the transmission from them winning contracts of the hospital group in the U.S.? How is that being seen in your business? Is there a delay before they, when they sign, then they have to build the infrastructure, the software, and so on? Is there a three-month, six-month, nine-month delay before they, from when they ramp up and until you get the revenue, or are you just delivering on par with these fixed contracts?
What Philips, I think, normally communicates, and that's also what we're seeing. When they win a new contract with a new hospital and they do an installation, basically finishing off an installation, they are typically, depending on the size of the hospital, it takes between 9- 18 months for full implementation. That's what they are looking at. Typically, the onboarding goes that the hospital goes through, they do a pilot, they implement it in one ward, then they see everything works, it gets approval, then they do a full rollout, and the installation takes time. It is quite a, there is a delay depending on the size of the installation.
Are there any sales from the former generation that are still out of the books? Now it's the new generation products you're selling?
We still have some of the old generation.
Is it material of the DKK 22 million in the quarter?
No, not in the quarter. No.
From Q3, Q4, and into next year, it's the new generation.
I think by the end of Q2, we are basically all on the new generation. Of course, the new generation is with products where you continuously update software and features. There is going to be a continuous kind of new versions. There, we should have the transition basically more or less completed on the main content.
Regarding the opportunity to sell into new clients like Siemens or GE or whoever, are you starting to approach those, or are you having your hands full with Philips just to make certain that that works?
We do have our hands full. That being said, we had initial reach out, but it's something that we need as part of both what we're doing, revisiting our market understanding, the strategy. This is something I'm quite sure that will be an integral part of that plan that we need to strengthen because that takes time as well.
Yeah, that's very honest.
There's a good lead time on that, right?
Yeah. Yeah. Let's assume you sign one new client, what's the lead time before you have the specifications and can start shipping products?
I probably can't give you a valid answer on that one.
One year, two years, or I guess it's a long process.
I would also expect yes, but it's something that we need to get deeper into to actually provide a valid response.
One of the results of the tariffs changes was that you wanted to diversify your sourcing. Can you give an update on how your sourcing or procurement situation is today and if it has any impact on future financials?
I think for years, we have the operational setup that we have good partnerships with current manufacturers both in Europe and Denmark, but also in Asia, of course, with a major part in China. For years, we've had a China plus one strategy, and now we are accelerating that. Our supply chain is currently moving production out. The way is that we have to go hand in hand with our customers. It's a close collaboration between us and our customers and our partners. The partnerships that we have with the EMS manufacturers are global players. We can actually move within the same manufacturer. We can move out of China, for example, to the Philippines, which is one of the areas where we have a majority of our footprint. I would say it's an acceleration, but it's very in hand with our customers in this.
On tariff, I think, as you mentioned as well, in our contracts, the tariffs are handled by our customers. They do also have a very close say in where we actually put that footprint. I think the strength for us is we have the flexibility and agility to do it. We are doing it at the moment, and trend is definitely moving out of China. When you get into details, it gets more blurry talking about moving out of China, because you can move tier one out of China, but you still have some raw materials and so on. We are definitely also working with our suppliers moving in tier two, three, and so on out of China. Again, reflecting on that, 12 months ago, we talked about no tariffs, and now we are happy. It's, ooh, Europe got 15%.
The tariffs are a new thing we have to adapt to. I think we will be impacted, I'm quite sure, in terms of pressure on prices for sure. I think we're actually in an okay position to manage with the agility we have with our suppliers.
Okay. The outlook for you, you have this DKK 30 million range on revenue. There's a range on earnings as well. You have three months at least visibility. There's one month left. What can take you that you end down at the DKK 520 million and not the DKK 550 million? Is that simply the customers to decide if they want the products in late September or first of October?
That's one part. There are also our production partners, some of the components, of course, being shipped in so that it can be produced by the end of the year. There is an uncertainty on some of the components, like the raw ware cells. They are the two main parts.
That means you have a black box for you to look at, if you will.
Internally, of course, we've got a smaller range than DKK 530 million to this. Of course, yeah.
I can also see that you have started hiring again. You made a cost reduction exercise earlier in the year, but now you are 6% more people than you were a year ago. Is that because you got to a point that now you reinvest because you are more confident about the future or?
The majority of this increase is because we've insourced resources on test. We have created, yeah, we've got 25 people that we have had with an outsourcing partner for many years. In order to ensure that these key resources stay with RTX with the know-how they have, we decided to reduce the risk and then insource these. That's the 25. Apart from that, we are more or less flat. Of course, you can say something about looking forward.
Yeah, I think looking forward, we are trying, really, we're investing in spending time understanding the market opportunities that we have to drive growth and have a strong growth ambition also for RTX going forward on the midterm, very much founded on retail and on healthcare. When we do that, when we set that ambition, I think, at least for me, and maybe also looking at the RTX history, it's very important for me that we have a solid plan. Of course, when we set high ambitions, we also need to say, what does that entail for our organization? What does that mean? What do we need to do more of? Is there anything we need to do less of? That will be part of that. Definitely, I'm expecting that we need to bring in competencies in healthcare because otherwise, we won't succeed with that opportunity over time.
Again, for me, it's very important that when we state an ambition, we also have a clear picture of what does it take to do it. That, of course, involves organization as well and people. It's people that create results.
Okay. The hour is gone. I can't see questions out there. Anna, are there any?
No, no questions from the audience.
Okay. All right. Thank you, everybody, for joining, and have a good day.
Yeah, thank you. Have a good day.