Good afternoon and welcome to Savox Communications third quarter result webcast. Our speakers today are CEO Jerry Kettunen and CFO Juha Järvi. Jerry will give an overview of Savox as a company and go through the highlights of the quarter. After that, Juha will continue with more details about the financial development. My name is Pauliina Tenhunen, and I will be hosting this webcast today. Before we begin, I would like to remind you that there will be a Q&A session after the presentation. You can post your questions at any time during the presentation using the chat function. With that, I hand it over to you, Jerry.
Thank you. Thank you, Pauliina. Let me start with who we are, especially for those of you who are new to Savox. Savox provides mission-critical communication solutions for professionals who work in demanding environments. Our customers are in defense, law enforcement, fire and rescue, and industry all over the world. We are a Finnish company founded in 1982 with our roots in safety and security. Over the past decade, we have grown significantly in defense. Today, we are approximately 300 people serving around 300 customers in 61 countries. In June this year, we listed on Nasdaq Helsinki. So, what do we actually deliver? Our business is organized into three business areas: defense, safety and security, and industry. In defense, we focus on two use cases. The first is dismounted user, where we provide active hearing protection, communication, and communication control.
The second is the vehicle, where we provide intercom situational awareness system together with rugged computing and vision. In safety and security, we serve fire and rescue and law enforcement customers with hearing protection, communication devices, and urban search and rescue systems. In industrial, we offer hearing protection, communication devices, mechanical engineering services, equipment cabinets, and protective enclosures, and industrial computers built for demanding conditions. One thing ties all of this together: reliability and mission-critical use. Defense is our main growth engine today. Safety and security and industrial give us a broad customer base and recurring business. That's Savox. Now to the quarter. Q3 was a strong quarter, and defense drew it in orders, in revenue, and in operating profit. Order intake and net sales developed as expected, and the profitability improved significantly thanks to higher volumes and larger share of defense in our mix. Three highlights stand out.
First, defense continued to progress well. We strengthened our position in Europe and in the mounted segment, our vehicle business progress was especially strong. Second, the progress shows in our margins. Profitability is improving according to plan. Third, our strategy is moving forward. We are building systems that give both mounted and dismounted professionals a seamless situational awareness. The CAVS program order we received Q3 with its commitment to Savox DPU computers is a concrete example of that. I will come back to it in a few minutes. Let's start with the growth. Orders received in Q3 were EUR 15.3 million, up 69% from last year. Revenue grew 57% to EUR 15.4 million. Defense was the main driver. Defense orders grew 244% in the quarter and 142% in January to September. At the end of September, our confirmed order book stood at EUR 36 million, including options.
Including the options, it was EUR 65.6 million compared with EUR 39.1 million a year earlier. The difference is options, add-on orders under existing contracts which the customers may exercise. Whether and when they convert depends on customer decisions and program schedules. The CAVS order, which I will come back to shortly, is a good example. We also invested in future growth during the quarter. We strengthened our customer-facing teams in North America and Asia Pacific so that we can take the experience and the references we built in Europe to those markets. Turning opportunities into orders takes time, but a stronger presence gives us a better platform for long-term growth. We stepped up our offering and our commercial activity in the maritime market. We see favorable long-term demand there for reliable communication, hearing protection, and integrated platform solutions. Our approach is discipline.
We focus on building customer relationships and relevant applications. To be clear, these initiatives support the development of our defense and safety and security business. They do not change our 2026 guidance, and their contribution will depend on customer decisions, program progress, and order timing. That's growth. What did it mean for profitability? Profitability improved clearly in Q3. Three things drew it up. A higher share of defense improved our product mix, higher volumes gave us economies of scale, and our business model delivered operational leverage as volumes grew. One note of caution, quarterly margins can vary with delivery timing and sales mix. That's why rolling 12-month figure gives a better view of the underlying trend. Juha Järvi will go through the financial and the definition of comparable EBIT in more detail. Now to the outlook. Our guidance for 2026 is unchanged. What supports the guidance?
A strong order book, increasing deliveries and customer activity, particularly in defense, and recurring orders from long-term customers in safety and security and industrial. To put that in context, revenue for January to September was EUR 38 million, and rolling 12 months revenue reached EUR 64 million. That shows our level of activity over the past year. It is not forecast for the full year. The order book gives a good visibility, but the timing of revenue depends on deliveries and program execution. In Q4, our focus is clear, converting the confirmed order backlog into revenue through careful planning of sourcing, production, and deliveries. The full year outcome depends on how we will execute. Finally, the CAVS program order, because that's what shows where Savox is heading. The order is for Savox DPU computers, our newest edge computing solution.
In simple terms, it brings data, audio, and video together in the vehicle and supports interoperability. It is designed for flexible installation, certified robustness, maintenance-free use, and long life cycle. The DPU is the heart of MissionCore approach, which is combining the communication and situational awareness into one integrated system. During Q2, we also received a smaller additional order from the customer. In our view, that supports the wider application potential of the DPU. We see significant potential beyond Patria with other vehicle manufacturers in weapon systems and command posts and on other defense platforms. In addition to the DPU, Savox already delivers vision solutions and intercom systems to the CAVS program. This additional offering is described in our listing prospectus. This order is about more than the one program. It shows our move from individual products toward broader integrated systems.
With that, I will hand over to Juha for financial. Juha, please.
Thank you, Jerry. Good afternoon, everyone. Let's next briefly cover the financials as usual, and let me start with the, as usual also, with the orders received. Orders received in the quarter increased 69% to EUR 15.3 million. For the first nine months, as Jerry also was explaining, the orders grew 53% to EUR 52.5 million. As Jerry already mentioned, it's truly defense that was driving the growth, with defense orders growing 244% in the quarter and 142% in the nine months. Safety and the security and the industry orders at large were stable, as we have explained before, and continue to provide a steady repeating flow of orders from us from long-term customers, which is an important balancing factor with the strong growth, partly volatile momentum we have on the defense side.
If you were to include also the options, the orders grew 117% in the quarter to EUR 19.7 million, and they grew 98% in the first nine months of the year. The new option in the quarter related to the CAVS DPU computer order, as Jerry just described. Let me move on to the order book. At the end of September, the firm order book stood at EUR 36 million. Same level as in the end of June, and modestly up from the same period a year ago. That's worth a comment. The book-to-bill was about one in the quarter, despite the very strong revenue growth. For the first nine months, the book-to-bill was about 1.4 all up, with defense being at about 1.7, and the other business areas just modestly above one book-to-bill for the nine months.
Including the options, the order book is record high at EUR 65.6 million, up 68% from the year ago. I think Jerry covered well the nature of the options, but just to recap, they are typically multi-year governmental defense programs, add-on orders on pre-agreed terms to previously made binding orders. Nevertheless, customer still has to exercise them, and as Jerry also said, the CAVS DPU order we received in the quarter is a good example of the logic of the orders coming together with the binding part of the order there as well. Next, moving on to revenue. The revenue in the quarter increased 57% to EUR 15.4 million. For the first nine months, the revenue grew 27% to EUR 38 million.
Defense grew 184% in the quarter and 62% in the first nine months of the year, which the latter actually is in line with the historical track record on the area. In August, with the first half results, I spent some time explaining how defense continues to be our primary growth driver. With these numbers now, I don't think I really need to explain that any longer. I will only add that defense in the quarter represented 58% of the total revenue. I do want to point out, as we have been indicating earlier in connection with the IPO and the first half results, that we also see safety and the security being the other strategic growth area for us.
While that may not be so obvious, looking at the numbers as we speak here now, we still have confidence on this based on the strong customer activity level we see and actual ongoing development programs we do together with our leading OEM customers. Let's briefly look at the revenue on the geographical level. As we said already in August, the timing of the defense projects is the biggest single factor causing quarter-on-quarter volatility on the overall revenues, and the same applies also for the geographical split of the revenues. When we look into 2026, it's obvious Europe has been leading the growth, with revenues in the region up 47% in the nine months of the year.
North America and the rest of the world have also been growing, while Asia Pacific is down compared to the prior year, partly driven by a very strong comparison there last year. In terms of the business areas over the regions, safety and security continues to provide a more stable demand for us across each of the key regions. Whereas I want to point out that industry, as we have said before, is basically purely a Finnish domestic, i.e. European business in the regional sense. That said, moving on to the profitability. Our gross profit increased 114% in the quarter to EUR 7.7 million. The gross margin improved to 50% from 37% in the same period in the previous year. For the first nine months, the gross margin was 44% compared to 37% in the last year.
Drivers for this improvement here are exactly the ones we've been discussing throughout the year. On the kind of gross margin level, there's two key drivers here. Firstly, in the quarter, we have a favorable product mix. Defense in the quarter, as I mentioned, was 58% of the total revenue. That compares to 32% of the revenue in the same quarter last year, or 38% in the first half of the current year, which was a bit of an explanation in the first half to be seasonal short term. Now we are up there with 58% in the quarter, also compares to the 51% in the full last year. So we have a favorable defense mix here, defense being the most profitable product area in terms of the sales margins, and this clearly is visible in the gross margin performance.
The other key driver here, as Jerry was commenting, is the scale of the economics in the production, the higher productivity, production volumes, revenue level basically, so to say, improves efficiency in the production and especially absorption of the production fixed overheads. These two drivers are explaining the strong gross margin performance in the quarter. Thirdly, moving on to the operating leverage. When we grow revenues 57% in the quarter, healthy gross margins, at the same time, the OPEX under control growing 15% on the quarter to the prior year. This is where the operating leverage is really taking effect. Last year, the comparative quarter was weaker exactly for the same reasons, lower volume, lower defense mix. Still kind of explains the logic we've been talking throughout the year. Moving on to the actual EBIT and comparable operating profit.
The comparable operating profit or EBIT for the quarter was EUR 2.9 million, representing an operating profit margin of 19%. A year ago, it was negative EUR 0.7 million. For the first nine months, comparable EBIT turned positive at EUR 2.2 million, or 6% of the revenue on net sales. Again, compared to negative 1.9 in the prior year on the same period. The improvement here is a direct consequence of the three drivers we explained, just again, both by Jerry and myself. Looking at the third quarter, the items affecting the comparability were negligibly. Both reported and comparable EBIT margin was EUR 2.9 million. Just to remind, for the first nine months of the year, the key item affecting comparability there in the OPEX is the IPO that is EUR 0.8 million impact of the total EUR 0.9 million items affecting comparability here.
Finally, I like to point out that, what Jerry already mentioned, we now have last 12 months rolling revenue of EUR 64 million, close to the lower range of our guidance for the year already. In that same period, last 12 months, then comparable EBIT margin at 18%. That is kind of giving us confidence that this really works as we continue to grow and scale. With that, I am ready to move to cash flow and investments. Cash flow from operating activities was a EUR -3.8 million in the quarter and EUR -8.7 million for the nine months year to date. As I believe you can see on the left-hand side here, the main driver for this is capital tied into the working capital to support the growth. In the quarter, the working capital increased by EUR 6.9 million as we secured supply for the upcoming deliveries.
This relates to inventory and also receivables, including contract assets, where we have recognized the revenue, but not yet billed to the customers as we proceed to execute on the projects. On the financial expenses side, on the cash flow, financial expenses paid, the actual financial expenses decreased in the quarter, but this effect was largely offset by foreign exchange rate effects. The cash flow here reflects working capital investments to support the growth and deliveries. It does not reflect the underlying profitability. It is merely a timing difference from the profit recognized in the profit and loss to cash collection. On the investment side, we continue to invest steadily according to our plan, with the investments modestly up compared to the previous year, and the primary focus here, as before, on the R&D. Our financial position remains significantly stronger following the IPO.
The net debt end of the quarter was EUR 19.4 million compared with EUR 36.6 million at the start of the year. Compared to the end of June, the net debt, however, increased, reflecting the working capital buildup I just described. Cash at the end of the period, EUR 5.9 million. Worth to note here that during the quarter, we also reduced our revolving credit facility by EUR 3.8 million, which is reflected in the cash position. We still have the credit limit available of EUR 4.8 million and currently completely unused. In terms of the financial strength, equity ratio is healthy at 51% end of the period, and the net debt adjusted to last 12 months, or compared to the last 12 months comparable EBITDA is at around 1.3. All healthy ratios and clearly improved compared to the beginning of the year.
Overall, the balance sheet is significantly stronger than at the start of the year, and we are at a very solid position to support our growth and growing deliveries as we proceed to close the year. With this, I would welcome Jerry back to the stage, and let's wrap this up.
Yes. Thanks. Thanks, Juha. We are closing this session before the Q&A with the key takeaways. Defense is remaining our main growth driver. Defense orders grew 244% in Q3, and we do have a strong confirmed order book, and this gives us a solid basis for future deliveries. Secondly, the profitability improved clearly with the facts we have been telling to you. Third, our guidance is unchanged. Fourth, we continue to execute our strategy. The CAVS order is an important milestone for the Savox DPU computer and MissionCore concept. To sum up, strong commercial momentum, improving profitability, and concrete progress in our strategy. With these words, we are ready to move to Q&A session.
Thank you, Jerry and Juha. Let's begin with the questions. You mentioned that orders and sales developed as you expected in Q3. Your guidance indicates high sales volumes in Q4. Do you assume also orders from Q4 to be converted into sales in Q4? If so, should we assume from your unchanged guidance that you have received well orders so far in October, November?
I think we are going to answer on this together, Juha.
Yeah.
This is quite broad question. I will start with the difference of the business. As we have been explaining, we do have two different businesses in the company. Defense, where we deal with the longstanding projects, but also in defense, we do have more short-term businesses. In safety and security, we see more recurring and short-term businesses when it comes to revenue conversion. That is the first answer to the question. In Q4, we naturally see that there will be orders we are able to turn into revenue because of the nature of the business.
Yes, then the continuation was that we are actually pretty far ahead of the Q4 already. Can you comment anything about the orders coming in Q4?
What should we comment, Juha?
I guess we probably cannot say too much. Let us put it that way, that there has been nothing too special we would have needed to comment.
What comes to the Q4, I am still referring on the rolling 12-month revenue, which shows EUR 64 million. It shows also a bit how this calendarization of the business is affecting on us. The Q4 is always the strongest season for Savox.
Exactly.
That is because of the nature of the public procurement budgeting.
Thank you. Next question is about profitability and gross margin. Defense grew significantly faster than the other business areas in Q3, while gross margin reached 50%. Should investors expect an increasing share of defense revenue to structurally support higher group margins over time?
Yeah, I can maybe start this, and then, Jerry, you can add if you want. I think this actually is pretty close to what we have been explaining to be exactly our fundamental long-term profitability drivers back from the last five years, and very much valid today. What I already touched in this call today, if we look on the business area level, defense for us is the one where we have the most of the growth, and it also is the one where we have the highest margins in terms of sales margins on the products. This combination clearly is one of the three fundamental drivers that have, for years, supported our profitability improvement. If you actually looked back, and we discussed this in the IPO, defense share in 2021 was 13% of the revenue. Last year, 51%.
I had to defend it a bit in the first half. It was seasonally down, but strong book-to-bill there. Now, we were 58% in the Q3, and you realize that there is the seasonal nature of the business where it is mainly defense seasonality. Without saying too much further, you can make some thoughts about what the Q4 mix is going to be like, and then how the defense supports the profitability there. Of course, the other driver on the gross margin is just the volume growth, improving the scale of economics there. But defense definitely is, defense mix is one of the key driver or the key driver that supports our long-term gross margin improvement. Sorry for the long answer, but I hope that gets to the point.
Maybe relating to this discussion is a question that, is there any chance that Savox could somehow reduce this very high seasonality to some extent in the future?
Yeah, of course. That is our target. It is a bit of the challenge because of the nature of the orders, as I explained. But we have identified certain tools, and we are currently implementing these tools, so try to really work on it. It is not easy, but we believe that there is a chance to work on it.
Very good. How about the component prices? Have you encountered any impacts from rising prices, and if you are you able to offset these with your own price increases?
Great question. Yes. What comes to the component prices, there are actually two factors affecting us. Long lead times, especially when it comes to connectors, memories, and PCBAs. Then, of course, the price increase.
Generally speaking, yes, we are able to offset that into our pricing. There are many ways to do that and many components to work with that. But generally speaking, yes.
A question about the working capital. Do you expect, and how big one do you expect a release in Q4?
Yeah. That is kind of an interesting and a very valid question. We do especially expect, and we do see the delivery volumes grow significantly as we speak. This, I may be dare to say, would be also the case for the Q4. At the same time, we still do continue to build the capability to support the longer term, kind of, let's say, growth on the defense area overall. Maybe I will not go to give anything too precise, but delivery volume is definitely up. The working capital, we will still continue to keep on somewhat elevated levels. This is maybe a longer-term transition then to start to see that to normalize more. Jerry, if you like to
Yeah, of course, this is related with the previous question and what I answered there. Long lead times are affecting on us, and if we want to keep up the service level, we need to build up also certain inventory to really also satisfy our customers with the time-to-market deliveries.
When do you expect the older optional orders, not the CAVS one, to convert into firm orders?
Great question again. Yes, we are working on them. There are active discussions on this matter. I guess this is all what I can say at this point. But yes, we are working actively to turn the options into real orders.
Savox has recently highlighted its existing presence in Japan, its local partner, and its participation in the Finnish Defense Delegation to Japan. Could you elaborate on how you currently see the Japanese market and whether government and maritime customers could become a meaningful growth opportunity over the coming years?
Short answer, yes. Longer answer, Japan is an important market for us. We hold already a footprint in Japan, and naturally, our target is to expand our offering and customer base in this very important market for us. I have to say that these delegation visits are a very important tool in order to build up the existence and also show the support from the government in these export markets.
I think you touched on this already in the presentation, but there is a question about when do you expect to see growth from the other business areas, safety and security, and industrial?
Yes, I would say that we see a good development in safety and security. As we have been all the time addressing with Juha, it is a very important business area for us. We see great potential in it, both in short term and long term. As said, I expect that we see growth in safety and security soon.
Yeah. Maybe I just complement there to say again what we have said before, also in connection with the IPO. Industry for us is not an area where we really strategically seek growth. Defense is the primary growth driver. Safety and the security, we have said many times, we see is the other areas, as Jerry here can say, where we look for growth. Industry is more supportive role. It has synergies, especially with the defense area.
If I touch a bit the safety and security still. There are many channels we are working on in safety and security. We do have our own distribution network, and that's very important for the fire and rescue business. Then we work together with larger manufacturers, like radio manufacturers, and there we see good development. Also, we see a tendency where the manufacturers starts to support the bigger movement from traditional radio networks to broadband networks. Naturally, we are following this tendency quite carefully and adjusting our offering also accordingly to that.
Thank you. I think we are heading towards our last question. There are several questions about the MissionCore, so it's interesting to the investors. You describe MissionCore as a scalable digital platform for vehicle, vessel, and mission systems. How large could the opportunity become beyond the current CAVS program, and are you seeing interest from other platform manufacturers or defense programs?
It's hard to say how large. Of course, as we stated, we see the potential beyond Patria and the CAVS program, and there are multiple applications where you can use such a computer. What comes to the MissionCore, I want to define or describe it more precisely. MissionCore is a concept for us. It's a concept where we combine audio, video, and data. Why we do that? If we take defense as an example, the normal way of building up the situational awareness in defense has been audio, talking to each others, either through radios or to other matters. In modern battlefield, it doesn't work anymore.
You need to have better ways to build up the situational awareness. You need to share data, where you are, who you are, where are the enemies, having the maps and so forth. You need to share the video. This is what we talk when we talk about MissionCore, and it applies both to mounted solutions and dismounted solutions. This concept is something what we are currently developing for future needs and for today's demand.
Thank you.
DPU as a computer is a very important step in this concept.
Yeah.
It is related with the data and how to process the data.
Thank you, Jerry. I think there is one last really good question. It is about 2027, and what are your strategic priorities for 2027?
That is a good question. I think our first priority is to keep up the growth as we have stated in the target, but profitable growth as stated.
Thank you.
All is linked to these targets. Juha, do you have anything to add on that? Maybe I go a bit deeper. What I just stated in my presentation, geographical expansion, that is important. We see a good traction in Europe. The two main geographical areas, Asia Pacific and North America, are very important for us. Then the maritime expansion,
especially in these geographical areas.
Sounds like an exciting year ahead. This was our last question, and we would like to thank you for the good questions and interest in Savox Communications. If you have any further questions, you can find more information and Savox contact details on their investor pages. I would also encourage you to subscribe to their releases, the press releases, and the stock exchange releases on the investor pages. Again, thank you for joining, and have a great rest of the day.
Thanks.
Thank you.