Welcome to Norbit's third-quarter presentation. My name is Per Jørgen Weisethaunet, and together with me today I have our CFO, Per Kristian Reppe. We're going to give you some insight in the figures for the third quarter. So the third quarter of 2023 is the best third quarter in the company's history. It's 22% higher on revenues compared to the same quarter in 2022. This growth is driven by underlying growth in all our segments. The EBITDA margin has also improved from the last quarter, so it's 21%, so from the last quarter from the same quarter last year, sorry, and ended at NOK 68.2 million. If you have a look on what we have achieved for the last nine months, our revenues is accumulated up to NOK 1,123,000,000, which is a growth of 37%.
Looking into the different segments, so in segment Oceans, we have delivered a quarter with NOK 134 million in revenues with an EBITDA margin of 30%. This gives a margin of NOK 40 million. For the first nine months, we have NOK 422 million, an increase of 34%. The margin accumulated over the first nine months is 35%, spot on what's been our target for, you know, the ambition we announced to the market, mid-2021. On this slide, we show you a split on the revenues and compare that with the two foregoing years. And as you can see, the major part of our revenues still comes from the sonar sales. What's been very strong this year is the growth on the iWBMS platform that yields NOK 222 million out of the NOK 422 million.
The WINGHEAD sales have also been good with NOK 136 million, up from NOK 83 million for the first nine months in 2022. We have recently announced an acquisition, a good extension to our Oceans product offering, is the Canadian maritime technology company Ping DSP. This is a very good company with strong technology. It's a very special side-scan sonar. It's a very good extension to our multibeam sonars. So our main wish for this company is now that the NORBIT global sales and distribution platform could help lift these products out in the world and support growth. In the Connectivity domain, we have delivered a quarter as expected. It's NOK 160 million in revenues, which is an increase of 44% from Q3 in 2022. And the margins on the EBITDA side is 30%.
For the first nine months of the year, it's quite similar to what we've done in Oceans. It's 424 million NOK, and with the EBITDA margin also for this segment 35%, which also was the target in the 2024 ambition plan announced mid-year 2021. Looking into the revenue split in Connectivity, you see that our onboard units has yielded quite a large share of the revenues. 269 million NOK out of the 424 million NOK is onboard units. But you can also see a good growth on enforcement modules from 26 million NOK up to 50 million NOK. And it's also growth in the subscription and e-toll segment. But the steep growth is mainly from onboard units and enforcement modules. Looking into the Product Innovation and Realization segment, you would see decline if you compare the numbers directly. So the segment has yielded 86 million NOK in revenues.
If we compare, or and adjust, for customer reimbursement, there is an underlying growth. I will show that on the next slide. For the first nine months, this segment, this segment, I would remind you, this segment is mainly, also the majority of the revenues comes from contract manufacturing of electronics for industrial clients. The first nine months of this year, we have had NOK 300 million in revenues, and an EBITDA margin of 16%. So looking into the revenue split, you see that out of this NOK 299 million, 224 comes from contract manufacturing. And you have, 69 being some proprietary products and some R&D services. In 2022, we had nearly NOK 70 million, for the first nine months in customer reimbursement.
This being components procured in a challenging component market at premium prices, where the additional cost was invoiced directly to the client without any margin. So, it's a good sign that this is much less. That's an indicator that the component market is improving. So with that, I'd leave it to Per Kristian to give you some more insight into the more detailed financial figures.
Thank you, Per Jørgen. I will spend some minutes walking you through the financial highlights of the quarter. Revenues in the third quarter amounted to NOK 328.6 million, representing an increase of 22% from the corresponding period of last year. Adjusting for the effect of customer reimbursements of extraordinary material cost, which we invoice certain clients in the PIR segment without a margin, the underlying growth for the group was 32%.
Of this growth, currency impacted revenues positively with 10 percentage points from the third quarter of last year. EBITDA for the quarter was NOK 68.2 million compared to NOK 47.2 million in the third quarter of 2022. This represents a margin of 21% compared to 17% in the same quarter of last year. Operating profit was NOK 41.4 million in the quarter, while net finance expenses was negative NOK 11 million. Of that number, NOK 7.3 million relates to net interest expenses. Tax expenses were NOK 8.3 million, while net income for the period was NOK 22.1 million. In the third quarter, Connectivity and Oceans were the main drivers behind the improved EBITDA compared to the corresponding quarter of last year. Segment Oceans reported 29% increase in revenues on the back of strong sonar sales and favorable currency development in euros and dollars versus the Norwegian krone.
Gross margin was 69% in the quarter, an increase of 4 percentage points from the corresponding quarter of last year, largely due to lower share of sales on commission as we acquired our distributor in North America, Seahorse Geomatics, earlier this year. The increase in gross profit was largely offset, was partly offset by an increase in operating expenses, primarily due to a strengthening of the organization, operating costs from the Seahorse Geomatics operation, as well as integration costs. In Connectivity, revenues grew by 44% in the quarter, with growth in all product and service verticals compared to the third quarter of last year. Revenues were also supported by a strong euro versus Norwegian krone, with exports primarily to the European market. Gross profit increased due to a higher revenue base, with the gross margin being largely unchanged with that of the third quarter of 2022.
Partly offsetting, the gross profit effect was an increase in operating expenses of NOK 7.2 million, which is partly explained by a stronger Hungarian forint versus the Norwegian krone, as approximately 40% of the cost base is forint-based. The EBITDA ended at NOK 34.2 million, representing a margin of 30%. In the PIR segment, reported revenues were down 11% year-over-year. However, adjusting for customer reimbursements of extraordinary material costs, underlying revenue growth was 14%, driven by higher sales in contract manufacturing, particularly towards industrial clients. Gross margin declined 4 percentage points, adjusting for the reimbursement effects on customer mix. Combined, this resulted in a marginal increase in gross profit, and with operating costs offsetting the gross profit effect, EBITDA ended at NOK 7.9 million for the quarter. Next, balance sheet and financial position. Property, plant, and equipment decreased NOK 3.9 million in the quarter following a reduction in right-of-use assets.
Intangible assets decreased NOK 1.4 million to NOK 296.3 million. Inventories increased NOK 37.8 million in the quarter. Growth in inventories is partly a result of an expected activity increase. Inventory management remains a key priority in the group, with focus on increasing the inventory turnover and rebalancing the security stock level as the component market improves. Trade receivables decreased NOK 2.5 million in the quarter, and trade payables were NOK 164.5 million at the end of the quarter, up NOK 9.3 million from the end of the prior quarter. Net interest-bearing debt stood at NOK 242.5 million at the end of September, an increase of NOK 6.6 million from the end of the second quarter. Our equity ratio was 53%. In the third quarter, our net interest-bearing debt-to-EBITDA ratio decreased to 0.7x.
Our balance sheet remains strong, and we have a solid liquidity buffer of approximately NOK 458 million to support organic growth ambitions, pursue strategic acquisitions, as well as distribute dividends to our shareholders. Lastly, the cash flow for the quarter. Cash flow from operations was NOK 13.9 million, explained by an EBITDA of NOK 68.2 million, net increase in NOK 41.6 million in working capital, NOK 11 million in net finance expenses, and NOK 1.8 million in taxes paid.
We invested NOK 27 million in the quarter. Of that, NOK 15 million was invested in R&D, and NOK 12 million was invested in machinery and equipment. For 2023, we reiterate the expectation of investing between NOK 60 million and NOK 70 million in R&D, primarily allocating capital to the Oceans and Connectivity segments for new product innovations. Investments in fixed assets are guided to between NOK 50 million and NOK 60 million this year. Cash inflow from financing activities was NOK 4.9 million in the quarter.
I will then give the floor back to Per Jørgen for the Outlook section.
Thank you, Per Kristian. Before going into the Outlook, I'd like to notify you that if anyone of you have any questions, they could be entered into the chat. I see some questions coming in already. So after we've concluded the presentation, we will look into the Q&A part. But you're warmly welcome to key in any questions you might have. So as for the Outlook, we are well on track on delivering on our guidance to deliver in excess of NOK 1.5 million in revenues. This was initially our target for 2024, but as communicated previously, we decided to increase our guidance for this year and aim to reach our 2024 ambition level in 2023. All this is supported by growth in all business segments. And as Per Kristian said, we continue to explore value-accretive acquisitions to add to this organic growth.
So the short-term outlook, and I will remind you what we've said already. In the more long-term outlook, we've said that since we have managed to deliver on our 2024 ambition already in 2023, we are working on a more long-term perspective. And we will, during our Q4 presentation in February next year, announce some 2027 ambitions. For the short term, we expect that the Oceans segment to deliver growth compared to the same period last year. The fourth quarter has started very strong for Oceans. For Connectivity, we expect to deliver revenues in the range between 115 and 125 million NOK, up from 81 million NOK from the corresponding quarter last year.
In product innovation and realization, we also expect to deliver revenues in the range from NOK 115 million-NOK 125 million, up from NOK 112 million for the fourth quarter last year, and then adjusted for this customer reimbursement, which we already talked about. So with that, I think we would be ready, Per Kristian, to look into some of the questions in the Q&A. Yeah, we have a fair few questions coming from the audience. Maybe we should start with Jeppe from Arctic Securities. Congrats on a good quarter. A couple of questions on profitability within the different business areas. In Oceans, what is the expected gross margin going forward given the change in product mix, increased share of sales from GuardPoint and WINGHEAD, and more direct sales?
In PIR, you are guiding an EBITDA margin of 8%-10%, while EBITDA margin last 12 months has been above this with a strong gross margin. What has been driving this? Do you expect an EBITDA margin more in line with Q3 going forward? So I could start to answer and feel free to fill me in. But looking into the Oceans segment and the margins on the product mix, so I think we continue to work to grow both the iWBMS platform and the WINGHEAD platform. And as communicated before, the GuardPoint, addressing a different market, the more underwater surveillance market, is also very attractive in the long-term perspective. I think when it comes to the change in margins given the product mix, I think it's been quite stable, the gross margin.
Maybe what affects it most, as indicated in the question from Jeppe also, is that we have acquired some of our distributors, so we do a higher percentage of direct sales, moving some of the expenses from COGS and then to salaries. So if you'd like to add something, feel free.
Well, I think in terms of the gross margin in Oceans, as you say, it's been relatively stable, sub 70%. At this point, we don't see any reason for or any particular reason for why that should change materially going forward. I think it would be a reasonable expectation that we were able to maintain that gross margin level also going forward. Obviously, there could be some swings from quarter to quarter depending on what type of products we sell, but that would be the expectation.
As for the PIR margins, I think so in our 2024 ambition, which was communicated mid-2021, we had a target of 8%-10%, which I think is comparable with good actors in the EMS market for contract manufacturing of electronics. We've had some higher margins and quite high margins for a period with some contracts with very good margins. And I think going forward, the percentage of revenues in the segments coming from contract manufacturing will remain high, and the margins will be according to the segment's underlying nature. I think we'll give some more flavor to that when we present in February what is the target, what we will aim for.
And also in the PIR segment, there will be some quarterly fluctuations because obviously on some of the clients, you have better margins than on others. So it really depends also on the customer mix. And I think what we've seen in the first half was that this year was that we were able to deliver quite a lot of volumes to a single client where our margins were quite favorable. So that also explains some of the margin decline in Q3.
Okay, so maybe we should follow up with the second question from Jeppe. So how was the sales activity and activity development within the different business areas in the beginning of the quarter versus the end of the quarter? And how was activity in Q4 started out? Yeah.
So I think generally, the visibility in the different segments are quite different. So in the Connectivity segment this year, we've had quite good visibility. Our change, the strategy of migrating more of the business from tendering and focusing more on being a technology partner, the business-to-business-driven business has improved the visibility a lot. And that gives some more stable sales and not that high fluctuation month by month. I think in the Oceans segment, we've said that before also, that you could see more fluctuation month by month. And it's a trend that it's increasing throughout the quarter. And the PIR segment would be more comparable when it comes to this to Connectivity than to Oceans, I would say.
Yeah, and just to add to Per Jørgen, I mean, in general, what we saw during the quarter was that July was a little bit slow across Oceans and PIR. But eventually, the activity picked up quite fast. So September ended at a quite solid note compared to July. And we expect that activity to go into Q4, which is in line with the guidance that we have provided.
I think also in this question is a question related to the activity in Q4 and how it started. I think we said that it started strong in Oceans.
A question here. How do you expect Connectivity to perform next year compared to this year?
I think we should say stay tuned and listen to what we will say in the presentation in February. But it's fair to say that we are excited to continue to develop all three business segments.
Another question here from the web. I would like to inquire during the NORBIT Q3 session about Teledyne and Henry Singleton. I'm conducting a destinational analysis. It seems pertinent to consider Teledyne's current position as a desirable benchmark for NORBIT over time. Could management reflect on NORBIT's position relative to Teledyne in the markets they both operate in and perhaps discuss what lessons might be drawn from Henry Singleton, the founder of Teledyne for NORBIT's strategy and operations?
I think it's a very interesting question which would be good to have for a full dinner. But for those not knowing Teledyne that well, Teledyne is one of the competitors we have in Oceans on our sonar offering. So the main competitors would be Teledyne and Kongsberg, and a U.S. company under the name R2Sonic. I think Teledyne is an awesomely good company and a good competitor. I'm not sure if we could compare when it comes to strategy. So I think rather save this for some other occasion. But they performed well. Yeah, so I think we save it for a different occasion.
Fair enough. A question regarding the margins in PIR. What is the main reason for the decline in profitability for the PIR segment as the segment posts underlying growth?
Well, I think I was partly explaining it when it comes to the sequential development this year. When you compare it to last year, yes, I mean, indeed, there was an underlying revenue growth. But the revenue base that we delivered on in PIR in the quarter was significantly lower than the level we would expect that segment to report on. And hence why we have also communicated a sequential increase in revenues moving into fourth quarter. So in essence, we have been operating on overcapacity during the third quarter, which means that we also expect that when revenues move up in Q4, there should also be some effect on the margins.
A question regarding inventory. Do you expect inventories to decrease in the future as a percent of revenue?
Good question. It really depends on the pace of growth and how well we succeed in the strategies that we are developing to increase the inventory turnover. Also what type of strategies we decide to implement as we proceed with what's ahead of us. As a general comment, we have an ambition and a plan to reduce the inventory as a percentage of inventories going forward. How much will be the effect of that really depends on how fast we grow. Because obviously, when you buy components to inventories, you buy that for future activity in the months to come. If our growth is high, then obviously, our inventory position will also increase. Unfortunately, I could not give an exact answer to the question, but at least that's a way to think about it.
Okay, so another question on the leverage ratio and dividends. Could you indicate how long you would allow the net interest paying debt to EBITDA ratio to be outside of the long-term range before dividend or share buyback starts?
Well, I mean, yes, indeed, we are below the long-term range for now. Obviously, that excess capital can be distributed to the shareholders, or it can also be held back in order to finance inorganic growth and M&A acquisitions. I think it's fair to say that we have a plan, and we certainly look for attractive companies that can fit to the portfolio. We're primarily looking for acquisition targets within the Oceans and Connectivity segment that can broaden and diversify our product offering and service offering even further. So I think being outside of the range is fair for now, and we have a dividend policy in place. I think we will probably have to revert with some more color on that in terms of the distribution of the dividends once that's set for the fourth quarter and the proposal from the board of directors.
A question maybe to you, Per Jørgen. When the NOK 150 million order for OBU was communicated at the end of January, it was mentioned that the volume for the full year from this customer was expected to be significantly higher. Could you expand a little on the outcome of this for the second half of the year?
Yeah, so this NOK 150 million order announced in January explains some of the peak in Q1, Q2. What's been good in this year is that we've been able to also bring on board other big clients. The main volumes in the second half of this year have been to also other clients than the one behind this big order announced in January. Making the client base going forward even more sound.
A question on iData. What is happening in iData? Are earnings higher than since acquisition, and what is the outlook?
Yeah, so we're satisfied about the growth that's been delivered in iData since we acquired the company. It's been slightly better than what was in the planning on the time of the acquisition. And I think it's especially in the field where we offer some services to some tolling companies. And the outlook of that will also be part of what we will announce more in detail in February.
In general, it's a quite stable and growing business. And I mean, one of the challenges that Hungary in general has faced is quite a massive increase in inflation, but we have been able to compensate for that by increasing the revenues even more. So I think earnings, to be specific on the earnings question, yes, it's quite much higher than what it was since the acquisition.
Yeah, maybe when talking about this, we could also remind the audience that a very high percentage of these revenues are subscription-based revenues. Growing the amount of subscribers is helpful then.
On a question regarding customer concentration. In sales, could you indicate any customer concentrations, i.e., top three customers, as a percentage of sales?
So I think to answer that question, so the different segments have a very diversified client base. And inside each segment, it's also quite diversified. So the dependency on single customers is not that significant. So I don't think we have any top three customers to announce today, but it's quite spread. So in the Oceans domain, it's a lot of different customers spread throughout the full globe. In the Connectivity space, there are fewer customers. But also in this domain, as indicated on the previous question, the customer base is growing, so the dependency on single key clients is reduced.
Okay, question on offshore wind. In some geographic markets, offshore wind is facing delays and project cancellations. Will this have any impact on the Oceans division's growth?
Same. It's a good question. But I think the trend, even if some projects are postponed or canceled, the need for surveying and exploring the Oceans is not canceled. So I think that will continue. And we're quite optimistic about that also going forward.
And to add to that, I mean, it's a very diversified customer base, and applications are quite different in that segment. And I think what we have seen over the last year is that actually the increase into the oil and gas sector has also increased. So there is a natural diversification also in that business. So we don't necessarily always rely directly on one specific application, in this case, offshore wind. Okay, so what are the largest challenges for you as a company to continue to deliver solid growth for next year?
I think our core strategy since many years has been to cherry-pick what we focus on. So really, it's about doing tailored technology in some carefully selected applications. And to be able to do that, we need to continue to do market-driven innovation. It all starts in the domain where we have some people that understand the life of our client. And as long as we can continue to really accumulate domain knowledge and ensure to innovate products and solutions that are relevant for the clients, we can, with success, broaden the product offering and continue to grow.
Could you give an update on RFQs in the security area? What type of size are we talking about here?
I think we can give some indications without being too specific. The list of RFQs is still growing. We see that we have also been awarded some contracts that we will deliver on. It's a mix of projects where it's from, say, NOK 5 million-NOK 10 million up to much higher than that in the different projects.
You've touched on the benefits of consolidating some of your distributors. Can you talk us through the inorganic acquisition strategy and opportunities in both product and distribution?
Yeah, so if you look historically on what kind of acquisitions we've done, it's been some to broaden our footprint and making a better market access. Some have been products. I think we continue to look in that space. What's important for us is to see that it's some clear synergies and a strong cultural fit if we should do an acquisition. Yeah, so I don't know if that answers the question, but yeah.
Okay, so I think this is the final question unless any further comes up. So which division is mainly driving the inventory drag on cash generation? Is this likely to be less impactful as the component market normalizes? So if you take the three segments and look at them in specific, I mean, in the Connectivity and Oceans segments where we have our own proprietary technology, where our margins are higher, the stockout cost is obviously also the highest. So it remains important for us to be in a position to continuously deliver and also on shorter time periods, which warrants a somewhat higher inventory and a lower inventory turnover than in the PIR segment. One of our main priorities now is to reduce the inventory and increase the inventory turnover in the PIR segment, which has caused a drag on the cash generation.
That could be a combination of several things, but it could also include advanced payments from customers. I think one of the reasons why we are in the situation with a high inventory level is primarily due to decisions taken throughout the last years where the market for the components was very challenging. We had to buy a long series of components, quite expensive components, to our inventory in order to deliver to our clients. As the market normalizes, our strategies have been changed and are continuously adopted to make sure that we position ourselves for better cash generation and higher inventory turnover in the quarters ahead of us. Okay, so one question on R&D spending. Are you committing to an R&D spending to develop new Oceans security products and services?
So we are allocating capital to continuously broaden our product offering and doing R&D investments. And currently, we're allocating mostly to Oceans, and also a good share of the R&D investments is allocated to Connectivity. And of course, these security products and services, we strongly believe in the market for underwater surveillance. I think that's a market coming, and that will last long. So it's fair to say that we find it attractive also to spend the brains of our brilliant engineers to develop good products and solutions in that domain also.
Okay, I think that was the final question.
Thank you all for taking the time and for showing the interest. And hope that you will find time also again in February.