Ladies and gentlemen, thank you for standing by, and welcome to a presentation of INVISIO Q1 report 2022. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question, you will need to press star and one on your telephone. I would now like to hand the conference over to CEO of INVISIO, Lars Højgård Hansen. Please go ahead, sir.
Thank you very much. Good morning, and welcome everyone to our Q1 presentation. We will turn directly to page two with the highlights of the first quarter. We have seen a continuation of the rise in activity level that started already in the second half of 2021. In the first quarter of 2022, this has led to a very high order intake, actually the highest order intake ever in one quarter in the history of INVISIO, almost SEK 400 million. It has been a mix of smaller and mid-size, but of course also some larger ones that I will come back to.
This also gives us, when we leave the first quarter, the strongest order book ever, almost SEK 500 million, which is a combination of products under the INVISIO and the Racal Acoustics brand. Now, on the less positive side, we are still seeing some issues with deliveries, both on incoming components that are not as early to arrive as we would have wished, but also when we are delivering to customers, we still see that deliveries are quite difficult, and they take longer than we are used to. Therefore, some deliveries are delayed, and this has also impacted our revenues in Q1. On the large order side, we have a new framework agreement.
From that agreement, we received a large first order that I'll get back to. We have several larger orders from the U.K. MoD. Lastly, we would also like just to comment on the geopolitical situation arising from the war in Ukraine. Now, on the next slide, please, our financial result for the quarter shows a slight decrease in revenue. Again, this is impacted by the delays in deliveries. We had more than SEK 15 million that were ready to be delivered end of March, but unfortunately were pushed into early April. Other smaller deliveries as well has been impacted during the quarter. Our gross margin is fairly good, almost 60% in the quarter.
We have, of course, seen some cost increases from suppliers, but we have also been able to do some price increases ourselves. It is still quite difficult to predict exactly what will happen on the pricing side over time. In the short term, we can see that certain component prices are still fluctuating quite a lot because of the lack of supply. We are confident that with a good product mix, we will be able to maintain our target of 60%-65% gross margin over time. Now, what is suffering in the quarter is, of course, our earnings because of the lower than expected revenue levels.
I said many times we have during the pandemic continued to invest in R&D, new products and in our sales organization. Those continued investments, of course, are expected to also give us higher revenues over time that we haven't seen yet. We're confident that we will soon return to good revenue growth. As I said, we have a record order intake SEK 400 million, and a record order book of SEK 480 million when we leave the quarter. On the next slide, please, just a graphical illustration of the order intake on the left-hand side for the last 10 quarters.
We can see that it is since, say, late 2020, we are starting now to see a positive development again in the order intake. Also on the order book side, we see now a good positive development. Of course, also helped by the acquisition of Racal Acoustics about a year ago. On the next slide, sales and gross profit is impacted a bit more, as we know from the pandemic. The positive development here is less, but still positive.
The gross profit has been developing negatively under 20%-21% a little bit, but we also know that some of that has been part of, or related to product mix, but also to the acquisition of Racal, where a large portion of sales is through system integrators and partners. Again, we are confident that we will be able to reach a level between 60%-65% over time for the group. Operating expenses are fairly stable now, and I would also say that I don't think we will see large increases in our operating expenses this year. We have invested quite significantly during the past two years, especially in the number of people.
Of course, we might add a few people here and there, but other than that, we have an organization now that are able to cope with larger revenues than we currently see. As the sales has not developed as fast during the pandemic as expected, that is the main reason for the EBIT margins being lower than we have as a target in the company. On the next slide, the first of the large orders that came through the quarter was a part of a five-year framework agreement that we received in the first part of the quarter.
It is a contract with a system integrator and related to a European vehicle modernization program, where the end customer will receive a number of vehicles over the next four years. The Racal Acoustics RA4000 Magna headset has been chosen for this vehicle. We will be delivering vehicle, or sorry, headsets, in the same speed as the vehicles are delivered to the customer. We have now received the first firm order for about SEK 90 million for volumes related to the first deliveries of vehicles. Only the SEK 90 million is part of the order book. As you might recall, we don't book framework agreements. We only book the real orders that we receive, in this case, the 90 million.
On the next page, we have three new agreements and orders stemming from the U.K. MoD, two of them during the quarter and one just after the end of the quarter. The first and very significant one, about SEK 90 million as well, is for our new INVISIO generation two control unit platform and system for use on armored fighting vehicles in the U.K.. Our new and very advanced system that can offer double hearing protection has been selected for these vehicles. We have also received more orders from the Tactical Communication and Protective System program, which we have been delivering to since 2015.
I believe, in total, we have received orders for more than SEK 270 million from this program, and this latest order was for almost SEK 30 million. With another customer in the U.K., we have been awarded an extension on new in-service contract for three-plus optional two years with this customer. This is, of course, also a very strong signal that the users are very happy with the products they have bought from us and how we support them, and therefore, they have decided to prolong the contract with us. This is another example of the very long relationships we have with our customers and a testimony to how well our products function in their environment.
On the next slide, we are of course all impacted by what is going on in U.K.raine these days. INVISIO Group has no business in neither Russia or U.K.raine, so we are not directly business impacted. There is, of course, no doubt that the new geopolitical situation will mean increased business opportunities for INVISIO. We hear from many countries in NATO, Western Europe, that the military spending will be increased significantly. We hear that the number of soldiers will be increased. All of that, of course, means that the need for our type of communication equipment with hearing protection will increase.
We think that the larger budgets, the more money that is being allocated, will also mean that it is possible for many countries to accelerate their investments into new equipment. This should be positive news for INVISIO. Now, as we know, in this industry, it takes time, so therefore, short term, we do not think that it will have a huge impact on us. I would guess that from 2023 and onwards, we will start to see the impact of some of these larger budgets in certain countries and that will definitely mean increased business opportunities for us. In summary, we have been through two very tough years during the pandemic.
We are still seeing some effects in terms of deliveries, components, and shipments, and we believe that this will probably continue another quarter, maybe a little longer, but sometime in the second half of the year, we think that we should be returning to more normal conditions. In the meantime, we will of course focus on getting as many orders as possible and continue the very strong order intake that we have seen in the first quarter. Then we will have great focus on marketing of our many new products. We are participating in a record high number of trade shows this year in all geographies, and we feel that the interest for our products is very, very high.
We will also resume when travel is permitted in all areas, our geographic expansion into certain parts of Asia, but also parts of Middle East and South America. I think that INVISIO is very well positioned to continue to grow. We are very well positioned to take advantage of the modernization activities that are happening for communications equipment and hearing protection. Of course the increasing defense investments in the coming years will only make this trend more solid. With that, I will conclude the presentation of the Q1 financial results. Operator, we are now ready to take questions please.
Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone. We have the first question Rebecka Garderup from ABG. Please go ahead. Rebecka, your line is open.
I think we are mute. We cannot hear you, sorry. Operator, will you try again?
Oh, his line is still open, so maybe she's on mute.
Any other questions in the meantime?
Yes. We have one question from Holomal Oberai from RBC.
Thank you.
There seems to be a technical problem, operator. We cannot really hear what's going on.
Okay. Okay.
Hello? Hello?
Hello.
Can you hear me?
Yes, we can hear you.
Maybe first question on the kind of sales activity and regarding what you see in terms of small orders, large orders. Do you see an activity both for small orders and large orders or do you have any input on the mix there?
I think it's a combination and it will continue to be a combination. There are definitely more projects in the making that could turn into large orders. But I think it'll be a good mix. As we have seen also in the first quarter, it's a good mix between both the U.S. and Europe, but also between our, let's say, soldier systems, our law enforcement and police and also relatively large orders on intercom. I think we see a good mix of opportunities going forward, including larger ones.
Thanks. Can you say anything about, is it mainly working with trying to get orders from existing clients or do you also see good opportunities in new clients?
Oh yeah, it's both. As I said, I think that the fact that more money will be allocated in many countries will mean that countries, customers that have maybe not been so active will start being more active. I hope, and I think that in the upcoming trade shows that we have now in the first half of the year, we will see more activities from customers, especially in Europe, including new ones. Yeah.
Yeah. In terms of new markets, you mentioned that you're going to start increased activity again in Asia, Middle East, and South America. Is this something that could have impact this year already or is it more like when it's in 3 and beyond?
I think we expect to see orders from some countries in Asia already this year, which are countries that we have already sold to. I think due to still some restrictions in travel, I don't think we will see any mid-size orders from the region until we get into 2023. It is starting to open up now.
Thanks. Maybe a question on the order book. We got some information about this new order that your press release about when they're gonna be delivered, but could you say something about what the delivery times are for the current order book? If it's mostly during the next 12 months, 6 months or any input on that?
Yeah, I would say that we, well, at least the order to vehicles related to Racal Acoustics for about SEK 100 million will be later, and related to rollout of the vehicle. Those approximately SEK 100 million will be starting maybe late this year or into 2023. For the rest of the order book, it is, I would say the majority will be delivered this year, pending again, component deliveries and other things. The majority is scheduled for delivery in the second half of this year.
Okay. That was all from me. Thank you very much.
Thank you.
Thank you for your question. We have the next question from Ui Joel from SEB. Please go ahead.
Hi, Lars, it's Ui Joel from SEB. Thank you for taking my question. A couple of question from my side, and I do it one at a time. Firstly, looking at the U.S., I mean, the delivery has been quite soft and I was also a bit surprised at the, you know, the L3, we already see L3, how is announced large or contract orders late last year from U.S. Army, but we haven't seen anything from you. Could you give us indication and sort of what is going on in that market? It means the largest defense market in the world.
No, I think there's not a lot of openness about when deliveries will take place. The fact that somebody has been getting an order is not the same as they have been able to deliver. I think those contracts that you relate to have not been delivered yet. They are further down the road. We have seen, let's say, relatively fair orders from the U.K., not larger ones, but in the small and midsize range. There is definitely activity there. As to those radio deliveries that you mentioned, I think they are also impacted by component shortages and delivery time.
We will not see delivery of those products until later. I don't have any information on when their deliveries are, but I assume that they have long lead times as well.
All right. Could you maybe comment a little bit on the large orders outlook in the U.S. for next 12 months? Let's see.
Well, yeah, it's difficult because we normally do not comment on specific opportunities because they continue to move back and forth and you are not always sure on where the funding is until the last minute. I think but there are definitely opportunities in the U.S. as well that are of a larger size that we are working on. Whether it will happen this year or next year, as usual is very hard to predict. The same goes for our intercom products that we have seen good development both in Europe and U.S., but still in a relatively small volume size.
There are also, we know, that there are opportunities available that could go into larger numbers. Whether it will happen this year or next year, it is always very hard to estimate.
Okay, thanks. My next question is on the supply chain situation. You have also warned a little bit on the soft Q2, some delays. How should we look at the second half?
We are still from the information we receive from suppliers and partners, we are still confident that we might not be up and running 100% in the second half, but we should definitely see a much better situation of both component supply and deliveries. That's the assumptions that we are working under right now, that we are going through a little bit tougher Q2, but after the summer, we will gradually now return to more normal conditions.
Okay, great. Regarding the Q1 order, is it possible for you to indicate the split between INVISIO and Racal brand?
I would only say that there is at least SEK 100 million for Racal and I will leave it there because today we have solutions that are, you can say, brand agnostic. We are not so concerned about whether it's one brand or the other. We will always try to give the end user, the customer, the best possible solution, no matter what brand or what solution it is. That's also why you can see that we have sold actually INVISIO branded products to a vehicle-
Right.
Customer in this quarter, even though Racal comes from the vehicle side. You will also going forward, maybe see Racal brand of products being sold to dismounted soldiers, which has traditionally been the INVISIO area. Therefore, we don't really want to make too much of a split, but in this case, I can say that at least SEK 100 million is Racal products.
Okay, thanks. That actually comes to my next question here. You mentioned the sort of delivery time for INVISIO brands, normally 2-6 months. Giving the large size of INVISIO brand orders at the moment, and also you sort of, you know, indicated continued impact from the supply chain. Do you see the risk of losing some of those the orders? I know it's firm order.
Yep.
Maybe, you know, your customer would not be happy for your continued delay in the second half.
No.
Maybe come a little bit.
Absolutely. I think that has been a very important part of the sales process with the customers here, that we have been in very close dialogue with them regarding delivery times and also when we will be able to fulfill the entire order. They are well aware of that situation. For them, of course, the most important thing is to be able to plan because it requires training and education and so forth. We have a very close dialogue, so that there will be no surprises for the end customers regarding this.
Okay.
That should be under control. We do not expect anyone to have any surprises here.
Okay. Thanks. That answered all my questions.
Bye, joel.
I'll jump back to the queue. Thank you.
Thank you for your question. There are no further question at the moment. We have a question again from Rebecka Garderup Please go ahead.
Hello. Can you hear me now?
Yes, we can. Hi, Rebeck a.
Yeah, perfect. All right. Hi, Lars. Just a question about the gross margin that was very strong in the quarter, despite the rising transportation and the component costs, but boosted by a positive sales mix. Can you say anything about the outlook of the gross margin, any visibilities into the sales mix, the next couple of quarters?
Yeah, I mean, of course it is. There are many components to the gross margin. Everything from currency to transportation costs, to component costs and increased pricings from our suppliers, but also our own increased pricing. It's really a complicated soup that we are trying to estimate on. I think that we have a fairly good situation here. I think that we have also still benefits from being a growing company, so that our buying power against our suppliers also now including Racal is increasing and not decreasing. Short-term, as we also saw in Q4, there were some extra costs related to yeah getting a few components in faster.
We've seen a little bit of that in Q1, but not too much. I think all in all, we should be well-positioned to be able to be around the 60% or above the 60% level. That is definitely a target that we have and that we will do a lot to maintain so that we can continue to have a high level of investments in R&D and the sales organization. We're quite confident that the combination of prices and also our buying power, and so on, and the product mix will help us with that.
All right. Okay. Thank you. A question maybe a little bit related to that. How much did Racal contribute with in the quarter sales wise?
Racal is up at the same level more or less now. I think we have been working very diligently with the Racal products and so forth. I think that they are at the same level more or less than the INVISIO products. It's also so that as we tried to explain in the early days of Racal that they have, of course, product sales exactly as we have at INVISIO. But the Racal products are also, since they're used in vehicles, they're also made in such a way so they can actually be serviced and repaired.
Probably around 30% of Racal's revenues are related to service or repair, where the gross margins are sometimes higher than what they are on the standard product sales. Again, it's a mix of factors here.
All right. Okay. Sales wise, how much did Racal contribute with in Q1?
We don't split that anymore. Again, also because we-
All right.
We will be using the two brands, cross selling. We're not separating them towards customers. You might see, going forward, you might see products developed in Copenhagen that will be using a Racal brand if they are more suited for vehicles. Also products that are developed in Harrow in U.K. that could be having an INVISIO brand on it for dismounted use. We see it as one part of products now, one portfolio.
Okay. Okay, thank you. That was my question.
Welcome.
Thank you for your question. There are no other questions at the moment.
Okay, operator , no more questions.
We thank everyone for calling in and listening today and hopefully talk to you again after the second quarter.
That conclude the conference for today. Thank you for participating. You may all disconnect.
Thank you.