Earnings Call: Q2 2021

Jul 22, 2021

Thank you very much. Hello, everyone, and welcome to our Q2 update for Envisio. And we have 2 main highlights events from the quarter that is sort of describing what we have seen in the last 3 months. First of all, we have launched a a new technology platform of control units that I'll get back to in just a minute, but a very significant technological and product related event for us. Secondly, we are seeing that our markets are gradually becoming more active. As vaccines are rolled out globally, we can see that activity levels are rising, people are returning to work. We are able to go back and visit customers, especially in the U. S, but also in Europe, we see now the same positive trend for our markets. Turning to the numbers on Page 3. Our revenues increased by 20 25 percent year on year and went up to SEK 154,000,000 compared to SEK 1,300,000,000 in the same a quarter last year. And in comparable currency, our revenues actually increased by 35%. Our newly added product line from regular acoustics contributed with about €30,000,000 of that number. And for the 6 months period, we saw revenues increasing from $240,000,000 last year to almost €300,000,000 this year, meaning an increase of about 24%. And order intake was quite good during the quarter, EUR 167,000,000. And what is worth noting here is that we had one larger order of €40,000,000 But apart from that, this is a good stream of smaller orders from all geographies, all product areas. So I think this is actually a very good time for us that we can see stability on the inflow of smaller orders and also an increase in the number of smaller orders as markets are now opening up. So this is very good for sort of the future that we see better stability when it to the order inflow of small orders. So we left with a strong order book of SEK 192,000,000 at the end of the period. That for majority will be delivered before the end of the year. But when it comes to products from the vehicle product line, as we've said, sometimes their deliveries are a bit further out because they are related to programs with a long lead time. So sometimes, their deliveries are up to 12 months out. Good. On the negative side, if that is negative, our gross margin was a little lower than last year, which it was a strong quarter last year, 58% against 64.6 main reason is product mix. We see that continuously. It has to do with, yes, the type of products in this quarter, there was some sales of 3rd party product. There was also a higher sales of cables towards it's just in control units. And so this is, I think, the part of the normal fluctuations that we see. And same for the 1st 6 months, that is an impact because of mainly product mix. We still have the ambition, as we have said many times that our gross margin should be somewhere between 60% 65%, and we will also get back to that point, I'm quite sure. And that, of course, then impacts also the EBIT margin that was at 16.6% towards 21.7% last year and for the full year, 16. Sorry, the 1st 6 months, 16 point 5 versus 18.1 in EBIT margin. So the thing that is new for Envisio in 2021 is, of that we have acquired Regular Acoustics. And as such, we have depreciations. And in addition to that, we also have launched several new products and product platforms that we are now starting to amortize. And that is, of course, impacting our profit and loss result, but these are some of the investments that we have been indicating for a long time. If we turn to the next Page 4, there is just an overview of how these amortizations and depreciations are distributed. And again, I think this is part of the long term investments that we said we would do, especially in new products. We are now looking into a very, very strong product portfolio and lineup. We have just announced a new product platform for control units. We have our new T7 headset that just recently came to the market. We also have the Ray Fill RA4000 headset that is very new. And we have the intercom platform that has only been in the market for a short term. And these are, of course, the products or the development projects we now have to start amortizing on, but these are also the products that will make sure we can continue to gain market share and continue to grow our business in the coming quarters years. So I think we have an outstanding product portfolio now, the best that the company has ever had. We just need now the markets to continue to open so we can get out there and show and start testing these fantastic products with our customers. So turning to Page 5, I will not dwell on that very long. It's just the usual update on our sales per quarter and rolling 12 months on the left hand side and the EBIT per quarter and also the rolling EBIT margin. And again, the decrease in the EBIT margin is related to the investments that we have done internally and that we continue to do in new products in the organization. The slight increase in our operating expenses in the quarter and for the 1st 6 months also related to predominantly a few more people in R and D and a few more people in sales, especially in the European sales Jason. We have a very strong setup in the U. S. Where we cover most of the country or almost all of the country. Now in Europe, we are still growing the organization, and we have added some key people to the organization in Europe that we believe will help us, yes, go back to good growth numbers in Europe as soon as we can start visiting many of the customers that we know are there and able and willing to test our products. So on Page 6, we spent a bit of time this quarter to inform about the new technology platform, which is really a paradigm shift for us and for the industry where we go from hardware to software and where we also introduce very advanced artificial intelligence technology. So this is really one of the most significant events in the history of Enviso where we really lift ourselves to a new level and also, in our view have a competitive advantage now that is higher than what we have ever had towards our competitors. This technology platform is built entirely from scratch. So even though from the outside, it looks similar to the Generation 1 platform, everything inside is entirely new and built internally at Invisio from scratch. So we really believe together with our headsets that this platform sets the standard for audio performance, for hearing protection, for communication for years to come. One of the main strengths of the platform is that it gives a very high degree of flexibility when we can offer, I would say, customized solutions to customers and updating the system based on the standard platform. And we have taken many steps to make this as seamless as possible. We have a lot of new advanced algorithms, which will help the user hear even better, be better hearing protected. And in addition to that, we, as I said, have added artificial intelligence, which really will help the user to hear and filter out unwanted noise and sounds and making sure that they can be as efficient and as well protected as possible. And by this, we clearly show that we are driving the industry with new innovations. And this is one of the reasons we have invested heavily in the organization and in R and D over the the past year is to really make sure we are at the forefront of the industry and at the forefront of the technologies that can be offered in our space. So we believe this is a platform that will help Envisio grow over the coming years. So on Page 7, there is a couple of highlights from the new platform. Mission Adaptive is related to, as I just said, how we are able to adapt automatically to surrounding audio and noise, so the user does not have to do anything. The system will adapt it to the environment where the user is operating. We have market leading hearing protection. We also have a patented solution where we can actually have double hearing protection with both over the ear and an in ear headset at the same time, which gives the users really unprecedented levels of hearing protection. The system is flexible and intuitive. It doesn't require any setup. It doesn't require any calibration. It's just plug and play out of the box. And then the last but not least, Enviso audio, which is what we are very, very proud of, the way we are able to offer audio performance that filters out all unwanted noise and let the user hear what he needs to hear and nothing else. And turning to Page 8, by now, with a new platform, with a new system we have developed here, this platform will be available in a number of variants of control units, our V10, our V20, our V50, V60, all will be available on the new platform. And we then are able to, as I said, be very adaptable to many different missions that our users have anything from being a diver, a parachuter, a sniper, special forces, many different types of missions and functions, we are able to customize and adapt the system and the platform to different user types. We also are basing the Gen 2 on our IntelliCable principle, where all our cables are smart cables and that automatically adapts to all the different types of equipment that our users have, everything from computers, tablets, smartphones, minesweepers, radios, intercom system, anything that the users might want to use, we have intelligent cables for that will easily adapt to the system. They just need to plug the cables into the control units and into the unit they would like to connect to, computer, smartphone, radio, and then it automatically works. Last but not least, our new intercom system is built on the same principles. It also uses the Envisio Intellicables. So everything is integrated. It's modular. It's versatile, compatible. And the intercom system is compatible with all the different types of vehicle platforms that our users have, ground vehicles, helicopters, boats and so forth. And by having this entire system of personal system, IntelliCables and the intercom system. Envisio has a totally unique customer proposition that no one in the industry can match. So we are alone about offering this type of system that I'm sure will serve us well over the coming years. So Page 9, yes, just a short update. We did actually also receive one larger order from an existing customer in the U. S. Department Defense of EUR 40,000,000 that is part of the EUR 167,000,000 order intake that we saw during the quarter. But again, we are very satisfied that our investments in the sales organization, the investments in the distribution network is now paying off, so that the order intake of smaller orders is going very well and increasing. And we believe that was the right investments to make and that we will see continued good results from that. Page 10, another important development in the quarter was that the Swedish Police Authority extended the framework agreements we had with them with another year. We originally signed agreements with them back in 20 2019 for 2 years. And now the customer has extended these agreements with another year. We have a very good relationship with the Swedish police, and we are very pleased that we are able to help them with their communication and hearing protection needs. And this, of course, is also an important reference customer for us in many of the other activities, especially in Europe for for police and law enforcement. So more to come from that angle. So in conclusion, we are a little bit business as usual. We are continuing to execute our strategy. We continue with the integration of the regular acoustics product China. We continue to intensify our market penetration in North America, in Europe, in parts of Asia. And we do that through continued work with our sales organization and with our distribution partners. And of course, by introducing all the many new products that we now have available and can bring to the market over the coming months. We will also continue to have full focus on law enforcement and security with our own organization and also with our distribution partners, we still and very firmly believe that this is an area that will bring growth to Enviso over the coming years. And last but not least, our geographical focus, as I said, continues. We have done a lot of work in parts of Asia and Middle East. That, to some extent, has been halted by the endemic, but we are absolutely certain that we will be back on track shortly when the markets are open again for visits and for product testing and so forth. So in summary, I think this was a fair quarter the 1st 6 months that we are under the current conditions are satisfied with. We have been preparing ourselves for the markets opening up. We have been adding to the organization in sales and in R and D. And we now have, as I said, an outstanding product portfolio that we are very much looking forward to bring into the market and start writing the benefits from the new control unit platform, the new intercom and for the new headsets that we have launched recently. So that was the short summary of Q2 'twenty one and the first half year. And operator, we are now open for questions, please. Thank you. We will now begin the question and answer session. And And your first question comes from the line of Yibei Zhu from SEB. Please ask your question. Your line is now open. Hi, Lars. Thank you for taking my question. I have three questions here. Firstly, could you give us an update on the Intercom launch? And secondly, you actually mentioned in the report, there were some delayed orders So by Covi in the quarter. But I also realized that the inventory level is lower than last quarter at the end of Q2. So is it fair to assume that you don't expect any those delayed orders will come in the coming quarter? You see the risk of further delay of those orders. And lastly, a question on the Recall. You previously mentioned there will be margin development or margin improvement for Rayco Business? And could you also give us an update on the current margin level? Thanks. Yes. Thank you, Wei. And if we start with the intercom, that is going well, especially in certain parts of Europe and in the U. S, where we have being able to continue to travel. I think it is going along the same line as in Q1. The number of activities are increasing. We have a number of systems out to test. We have customers actually using it now in real life activities in parts of the world. And the feedback we have been getting has been very, very positive. So this is just a matter of continuing the rollout. We have continued to see orders also, smaller orders during the quarter for Intercom. So there's been nothing significant in the quarter related to Intercom. It has just been a continuation of the activities. And we do believe that the orders will continue to increase. And also, at some point in time, as usual, difficult to say, but we will see larger orders come from these intercom activities. So I think and our sales teams are quite good at updating also our social media with some of the activities that they do. So you can get a little bit of an insight into some of the activities that are ongoing there. When it comes to orders, I think what we have indicated during the pandemic was, of course, that it was very difficult to visit certain customers, and therefore, they have delayed their general level of activities and projects because many of our products are normally procured most of our products are procured as part of a long term modernization strategy, and it's never urgent to the sense. So the pandemic has just delayed certain activities and programs and projects. And we can see now slowly but surely that people are returning and they are looking at these projects again. They will be starting testing and so forth. So I think that will be back to a good activity level in the second half of the year. We are preparing ourselves as usual. We are helped by having a certain amount of inventory, so we can react fast. I think this will to be a competitive advantage in the next 6 to 9 months that we actually are able to deliver many of our products with a fairly short notice. So we are well prepared for the markets opening up. And your last question around Raykil, I think we have already done a lot of work with Raykil. As we said when we acquired them, their business model is a little bit different because the majority of their business are through large system integrators, through large vehicle programs and so forth. But I think the Rachel gross margin levels are now close to what we see for Enviso here. So slowly but surely, I think we are improving. So the margin the little lower margin we see right now in these quarters are more related to normal product mix variations and not specifically to Rachel. Great. Thank you. And maybe just one last question here. You mentioned the 3rd party product It was also sold in the quarter. Could you confirm it was still T5? Now it's a mix of things and it is not some of the margin lower margins in the quarter was also related to cables. Sometimes, there are cables that are where we have to accept a little bit of a lower margin because they are part of an established pricing model where we are just helping the customer delivering something that they've used before, but now they get it in the Inviso version. Sometimes, there are certain connectors that we just have to use that are very expensive, but there is a limit to how expensive a cable can be. So there are a number of different things that can impact the prices of specifically cables. So I think it is yes, it is the product mix. We have also in this quarter, I think we sold a few less headsets compared to cables and control units. So it's just a mix. Okay. Thank you. I'll jump back to the queue. You're welcome. Thank you for your questions. And there are no further questions at this time. Therefore, we'd like to hand back to the speakers. Thank you. Then we thank everyone for calling in and wish you all a continued great summer and hopefully talk to you again when we have our Q3 financial update. Thank you, everyone.