Welcome to our Q3 report. I'm Malin Siberg, and I'm the CEO of Guideline Geo. For any newcomers to us, this is who we are and what we do. We design and manufacture non-destructive geophysical solutions for any type of subsurface survey. Our main customer applications are to find utilities subsurface, doing surveys for any type of ground investigation, targeting specifically the infrastructure market and groundwater management, finding new groundwater or monitoring groundwater aquifers. We're a stock listed company listed on . We have a history. We were founded in 1923, and as you can see on the map, we have a truly global reach through our direct sales offices in orange. The black dots are our partner network, our distributors across the world. We are on a growth journey, and you can see our growth journey in the chart below.
Let's move our focus into Q3 numbers. This is the financials in brief. If I start with Q3, the net sales and order intake was down compared to the same period last year. The positive highlight in this quarter that we significantly improved our profitability, both EBITDA, SEK 6.1 million versus SEK 5.1 million, and EBIT SEK 2.1 million versus SEK 0.9 million for the quarter. We had a negative cash flow of SEK -3.6 million, but our solid net cash is at SEK 16.5 million, so we have a solid net cash situation. We know that we have quarter-by-quarter fluctuations. You can see that in our past. If we look at year-to-date numbers to even out the quarter fluctuations, we can see that we're flat on net sales.
We are a bit down on order intake so far. Over the year, we can really see a good and strong trend on the profitability. EBITDA is SEK 11.6 million versus SEK 8 million last year, and EBIT is positive, SEK 0.1 million versus SEK -5.5 million. I'll elaborate a little bit more on all these numbers in the presentation. Let's start with profitability. If we look at Q3 first, EBITDA was around 14%, and the EBIT was around 5%, which are good numbers for this quarter. The highlight for me is that if you look at the net sales, which was down -8%, we still managed to grow EBIT and EBITDA in absolute numbers. So despite the lower net sales, we increased our profitability for the quarter. The same goes if we look throughout the year. Our work to improve our profitability has given results.
So despite somewhat lower net sales, it's close to flat, the EBIT has improved from SEK -5.5 million to SEK +0.1 million for year-to-date for the first three quarters. We are now, after three quarters, positive on EBIT, and it's the first time since our record year, 2023, that we have that situation, which is very promising for the rest of the year. What's behind this positive trend in profitability? It is a result from quite a long time of systematic cost control measures in all parts of the company. It's also a result of measures to secure solid product margins. You have to work on all ends to make that happen, on pricing, on COGS, on manufacturability. So it's really hard work by many people within the company to make this happen.
I have talked to you before about the restructuring of our U.S. subsidiary that we initiated early this year when we closed down our Charleston office in South Carolina and moved and consolidated into a new office in Denver, shutting down our smaller office in Denver and moving to one facility where we now have sales, we have service, we have support, we have our warehouse and our administration for the U.S. team in one office that you can see in the picture. This is, of course, a lot of hard work. It is the right thing to do. It strengthens the team, and it saves us cost, and it also included some staff changes to make it happen.
So really happy to see that it is starting to give the results that we expected. If we look at cash flow, the operating cash flow for this quarter is negative, SEK -3.6 million. There are many factors playing into this. Pretty normal, I would say. But in all, first of all, if we look at sales in Q3, it was kind of strong in the last month of the quarter, and we ship a lot in September, and thus, we have not got paid from our customers, so we have an increased accounts receivable. For those of you that follow us, you know that our Q4 historically is the strongest quarter in terms of sales. So, typically we also order material to be able to ship according to forecast in Q4.
So that means that we have decreased our accounts payable. We have ordered and received material to be able to build products for Q4. The comparable number for last year is when we worked heavily to get our stock levels down to a more healthier state. It is now at a healthier state, but that can affect the comparison number from last year. If we look at the net cash situation, it is also being affected that we have increased our capitalization of our development cost. The reason for this is that our EU-funded project that I have talked about prior calls, the GeoHEAT project, is now decreasing.
That means that we are spending more hours on R&D development projects that we activate instead. So that is a natural step. If we look at January to September, the cash flow was SEK 9.1 million versus SEK 13 million last year. Let us shift our focus to currency impact and how that impacts our net sales. We sell mainly in U.S. dollars. In Europe, we sell in euros, and in Oceania, we sell in Australian dollars.
On the cost side, our supply chain is mainly Swedish krona, and 2/3 of our employees have their salaries in Swedish krona. That makes us very vulnerable for currency changes. For this quarter, when I said that the net sales is down -8%, if you would have had a comparable currency to last year's Q3, it would have been down -7% instead. If we look January to September, the net sale is -1% that we report out, but in comparable currency, it would have been +6%, which means that we ship 6% more instruments from our production. If we break down sales per region, and we all know that our quarters do vary in sales, but if we look at Q3, it was a strong quarter for APAC, and I will come back to why and what happened in APAC this year or that quarter.
We were down both in Americas and in EMEA. If we look over the year so far, the Q1 to Q3, Americas is more or less flat, and Americas is both North and South America. EMEA is strong, continues strong, +19% compared to last year, and last year was also growing. EMEA is doing really well. APAC is down but has caught up from the strong sales in Q3. When I say EMEA, it is both Europe and Middle East and Africa that goes strong this year. When I say that APAC has had a strong Q3, it is mainly Asia that has had a strong Q3. If we look at market highlights for Q3, we continue to see a strong demand from infrastructure and utility sector, and that means that we sell our MALÅ portfolio products, instruments, and software.
On the ABEM side, we continue to see a pretty strong demand from the groundwater sector, and we are also getting more and more requests from the defense sector across the world for our systems. When I talked about the strong Q3 in Asia, we got two large and strategic orders in Q3, delivered in Q3. The first one from South Korea, from KALIS, which is Korea Authority of Land and Infrastructure Safety. We won a large tender, and you can see the shipment in the picture below. We also won a public tender from Malaysia, SEK 3.0 million . Both of these tenders are multiple GPR solutions, are modern GPR solutions, both 2D, the smaller ones, and 3D, the larger array solutions, and the software solutions that go with them.
These two are strategic wins, and they are a good proof point of the value of the broad and modern GPR product portfolio that we have that is specifically targeting the utility infrastructure market across the world. They are also a very strong proof point of the strength of the global partner network. We sell in Asia mainly through our indirect sales channel, our distributors, our partners, and that really is a strong, unique selling point for us, and it really helps in these type of larger tenders. We continue to develop our sales channel. Our strategy is to move the needle to even more indirect sales. Typically, we have 2/3 of our sales is through the partner network and 1/3 through our own direct sales offices or salespeople. We are moving the needle to even more indirect sales.
The short-term effect of moving that needle is that we sell to our distributors, and they add their markup and they sell to their end customers. Obviously we get a lower revenue than if we have sold directly to the end customer, and we also lose on profitability when we go indirect. That is a short-term effect. When you analyze our results, moving that needle has that impact on sales and profitability. Why do we do this? We strongly believe on the long-term effect that this is a way for us to scale. This is a way for us to actually have that global reach that we have and want to continue to defend. We are confident that this will help us grow faster and grow the market faster. We believe that we bring stronger customer value in being local through our partners.
In Q3, we added one new partner in Brazil, a huge country with a lot of potential. So always needs to fill the gaps where we have gaps or find strong partners that can help grow sales. In Q3, we also gathered our European partners. We gathered them in Athens this time, and we got partners from all across Europe and someone from Middle East as well to join us for sales training, for demo trainings, and we also got the chance to get market feedback from their customers. If we look at what products we sold in Q3, on the MALÅ side, I've talked about two large orders. It's our modern GPR solutions that go well. The MALÅ GPR portfolio is the strongest portfolio also in Q3.
For ABEM in Q3, we've have a solid sales of all three methods, both resistivity, TEM, and seismic, with an extra strong sale on resistivity and TEM for the quarter. The orange on top is what we call other, but it's mainly Reutech sales that we sell to the slope stability monitoring radars to mining industry in North America. That goes really well and where we've just recruited our first dedicated salesperson to grow this business even further. Let's shift focus to innovation and the highlights for this quarter. We are operating in an industry that moves fast and technology develops fast. When I was at INTERGEO, an important trade show in our world in Munich in September, we could see that multiple of the GPR players introduced major product launches this year. That proves that things are moving fast.
To be part of this, we need to continue to develop our solutions too. GSSI, American GSSI, they introduced a new 2D radar for the utility sector. ImpulseRadar, Swedish ImpulseRadar, they introduced a smaller version of a 3D solution. Norwegian Kontur, they introduced their first hand-pushed solution. They've been previously focusing mainly on road scanning with mobile solutions. IDS, owned by Hexagon, they introduced a major feature release on their software. We didn't introduce something new at INTERGEO because we decided to launch our big new thing in the U.S. in Austin, because the product that we launched is targeting the U.S. market specifically, even though that we launched it worldwide. Our news is called the MALÅ Easy Locator Lite, and you can see that in the picture in the middle.
It's designed specifically for utility avoidance and mark-out, where you don't want to do the software processing. You need to, in the field, avoid any utility and do a mark-out with a spray can. So we want our customers to go from track to locating in seconds, and it's extremely easy to use, and it's also the most affordable in the industry. Another important release for us in the quarter is a feature release of our MALÅ Vision desktop solution, where we improved data positioning. We improved data processing, so you can do the data processing faster, and you can easier share projects between the project team that work with this. So two important releases. To summarize Q3 for us, the key takeaways are we significantly improved our profitability. It's been a trend, and I'm really happy to see the result here on profitability.
We continue to see a strong trend, strong demand from the infrastructure and utility sector for our solutions, and we got two large and strategic orders from this sector, from Asia. With that, I am happy to take any questions that you may have.
Yes.
Please type it in the chat if you have any questions.
We had one question coming in here. I assume you are not happy with the order intake and the net sales. Can you elaborate the reasons behind the drop in sales?
Yes. Obviously, we are not happy with the order intake or had hoped for stronger growth, but it is also an effect of what we see. If we start with U.S., I have talked about the restructuring of our U.S. sales subsidiary, and that in a small sales subsidiary, when the sales team needs to make sure that we get new landlords and make the move and taking care of our staff, the ones leaving and the ones onboarding, that of course takes hours away from customer meetings and sales activities. So of course, the decision to restructure our U.S. operations has affected our sales efficiency in North America, and we can see that in the Q3 numbers. I am still 100% behind the change. It is a good change. It was necessary, and it will give results, but it has affected the Q3 sales.
It is now done, so now we are, again, shifting focus back into sales and closing the year in a good way. In another region, I think I have talked about China before. In Asia, if you go back just a few years, China was by far the largest single country for us in Asia, and that has dropped quarter by quarter, year by year, and that is, of course, a work to make sure that other countries stand for the gap and provides growth. China, it is not an important market for us anymore. I do not think we are alone in the world to see sales into China dropping in this pace.
Are you still actively reviewing potential acquisitions?
Yes, we are. We have acquisitions and partnerships as part of our strategic agenda, and we are continuously looking at and searching for acquisitions or partners. It has to be right. We are not acquiring just for the sake of it. It was a while since we did an acquisition, but we have looked at quite a few along the way, and we have stepped out of them for different reasons.
Excluding the Korea and Malaysia deliveries, how did net sales and order intake develop in Q3, and what was order intake in the Americas now that the U.S. restructuring is complete?
That was a hard question to answer off the top of my head. We do not give away specific country sales numbers, so I will pass on the U.S. order intake number. We externally communicate these regions. What was the other part of the question? Asia or overall, I think you can do the math on your own if I understood the question right. Take the order intake
What was the order intake in the Americas now that the U.S. restructuring is complete?
Yeah. I will pass on the U.S. because I will not comment on separate countries. I think you can easy math on the large orders if you just deduct those from the order intake number.
How has the Easy Locator
If you have any follow-up questions, just email me, and then I can see what numbers I can provide.
How has the Easy Locator Lite been received by customers?
It's a bit early to say. We have seen quite a few sales, most of them from North America since the launch, but also from other parts of the world. We are actively promoting it in different parts of the world. It's a bit too early to say, but, of course, we'll assess that, and I can absolutely come back to that in an upcoming call. But we believe in that. It's very interesting, and we're first in the market to have this really easy, affordable, mark-out type of GPR that we think is an important and strong part of the market, especially in North America.
Should we expect a lower cost base going forward as a result of this transformation work and a larger share in indirect sales through distributors?
You should definitely expect a larger share of sales through our distribution partners. That is a strategy that I've talked about a number of times. How fast that needle moves, I'm not able to say, and it depends a bit from quarter to quarter, but that is part of our sales strategy. That will be also going forward. Cost structure, obviously, we have one office less with everything that comes with that, so of course, that's a new setup for our cost. Where we will invest and where we will keep existing cost structure, I'll need to come back to that in upcoming calls.
With order intake down 17% in Q3 and Q4 historically your strongest quarter, how does the order backlog entering Q4 compare with years ago?
I don't think I comment on order backlog. I think I'll pass on that question. But typically, if you look historically, Q4 is often by far our strongest quarter. You can see that obviously we have purchased components and put that on our stock to prepare for our forecast. If you look historically, I think you could expect also a strong Q4. How strong? We'll need to wait and see.
Follow up on that. Without asking for numbers, how would you describe the pipeline going into Q4 compared to with years ago? Are you seeing more large tenders like Korea and Malaysia in the pipeline?
It's a very good question. I think we are seeing a stronger pipeline in larger tenders. If that is because we are there more or if that's a trend in the industry, I think that's a bit too early to say, but we are definitely seeing more larger tenders in our pipe than we did a couple of years ago. That's of course really positive news to us. Then we need to learn how to close those larger tenders, and I think the big wins in Asia prove that we can do that.
ImpulseRadar launched a smaller 3D system and Kontur its first hand-pushed unit at INTERGEO. How do you see the competitive pressure on MIRA Compact, and are you seeing a price pressure in 3D?
I think we see price pressure a bit everywhere, to be honest, both for small orders, large orders. GPR, it's a tough competition. Yes, and that's why I highlighted the product news, the product launches from competition at the INTERGEO. It's a tough competition, and I think we have that same thinking within the industry that we can grow market faster if we all come up with news. Because I think that the infrastructure segment, the utility segment, they need to see that GPR is becoming easier to use for non-geophysicists. I think that's what the entire industry is actually doing at a high pace at the moment. I'm not that concerned about a product launch from a competitor. I think they help build the market faster.
We just need to make sure that we are relevant and attractive enough to be there, to be in that space, and I think we are.
Q1 to Q3 comparison 2025 to 2026. How much of the EBIT improvement depend on currency and lower depreciation? What is the reason for the decrease in contribution margin? How do you consider the market sentiment? What about the future? Do you see a general downturn also for your competitors?
Oh, this was so many questions in one question. I think you have to take them one by one, or please send me an email. Could you break it down, Anders, to see where we can
Q1 to Q3 comparison, 2025 to 2026. How much of the EBIT improvement depends on currency and lower depreciation?
We don't report the currency effect on the EBIT because there are so many things to consider. I think you can look at other companies, they don't do that either. I can't really comment on that. We comment currency impact on net sales, then you can see the margins, then you can do your own estimates. I won't give you that number.
What is the reason for the decrease in contribution margin?
The contribution margin is depending on many things. When we analyze it, you can often find part of the solution in the product mix that we sold that quarter, because different products have different margins. Our software margins are super, our third-party product margins are poor. It's a mix of the product portfolio that we sell that is telling me what margin to expect. It's also, of course, currency. It's also, of course, if we have a strong direct sales or if there's a high percentage of indirect sales in the quarter. Many factors influence where we end up in margin for the quarter. When I compare year-by-year, the shift that I've talked about from more direct to more indirect sales is, of course, a contributing factor to a trend towards a weaker margin.
On top of that, the ongoing work that my team does to defend and secure healthy margins. We, of course, work with our suppliers, with our design, with our pricing, with our discounting, with our volume orders to make sure that our margins stay healthy. Long answer to a question that is not-
The last part of that question then, how do you consider the market sentiment? What about the future? Do you see a general downturn also for competitors?
I don't think I will comment on competitors' situation. You have to ask them. Our solution in geophysics is used in so many different applications, and I try to highlight market where I see growth and markets where I don't see growth, and also where applications, market segments where we see growth. We see growth and demand from the utility infrastructure space, and I would expect our competitors to see the same. We see a lot of requests from the defense sector, and it's just to look around us. I think all of us see the amount of investments that goes into that segment. Any competitor that also is engaged in that sector should see growth potential also here. We are definitely seeing that. As two examples, the water sector, I think we all see the effect of a climate crisis, so we have a solution for water.
Of course, we expect that to be a growth market for us. Mining, you use geophysics for mining, and of course, that's also a growth sector. I have a strong belief in the underlying macro in our main markets. We are operating in several growth markets and so is our competitors.
On the topic of defense, you mentioned growing requests from the defense sector. Which products are they asking for? GPR or ABEM, and for what applications?
It is mainly GPR, and the main application is IED detection, landmine detection, or unexploded ordnance detection, any type of subsurface hidden explosive. We also get questions for border control to see if we can detect things like tunnels along the borders or explosives around the border. That is our main questions from the defense sector. It can also be general infrastructure. The military is building bridges and roads, and they need to make sure that the roads they build, the bridges they build are built on stable ground. So they need, what we say, normal ground investigation type of instruments, too. But the increase in demand is definitely around IEDs, landmines, and border control.
When does the GeoHEAT project end, and are you applying for new EU-funded projects to replace it?
Most of the work in GeoHEAT for us has been done. That is why our funding is going down. You have to read earlier press release. I think it is ongoing another year or another one and a half years, somewhere along that line. But most of our hours have been spent. We are continuing to assess that, and when we have something, we will announce that, of course. But it has its pros and cons. Of course, it is nice to get EU funding, external funding for R&D, but it also distracts us from the fastest pace to market with new products. So it has to be close enough to where we want to invest in our development. Which the GeoHEAT was. Yeah.
I think that is the last question. There are some other questions, but I think they are very similar, so I think you have answered them.
Yeah.
I think we can close.
All right. If you have any other questions that may come up, please just email me, and then I will respond by email instead. Thank you for listening in and see you again next year.