Earnings Call: Q4 2020

Feb 15, 2021

Thank you very much, and welcome everybody to the Q4 and full year presentation from Envisio. The last period of 2020 was very intense. For Invitio. A lot of activities happened. And one of the most important ONCE and indeed also a milestone in the history of the company was the acquisition of Raquel Acoustics that we completed now in the end of January. This acquisition is our first, and it does not only mean that we increase our revenue base, but it also means that we now have 2 of the market's strongest brands that we can offer to the market. And we believe in general that developments in the quarter were quite stable and also in 2020 despite the pandemic that we have all experienced. We think we have been able to strengthen our company and our market position despite the exceptional conditions that we have seen throughout the year. And all in all, Invizio is well prepared for 2021. But we do see that, especially in the first half of the year as many restrictions are still in place, there could be challenges in the same way we have seen during 2020. We will now turn to Page 4, where the financial results for Q4 and full year is presented. Now last year in Q4 2019, when we reported that, it was an exceptional quarter, the biggest ever in the history of the company. For this Q4 in 2020. It was also a very strong quarter, actually the 2nd best in the history of Invisio, but it did not come to the exact same level as in 2019. So we reached about SEK 173 SEK 1,000,000. But I'm happy to say that for the full year, we came up to SEK 5.30 SEK 2,000,000 in revenue, which was an increase towards 2019. Actually, in like for like currency, we had an increase of 7%, which we believe is stable given the market conditions in 2020. In Q4, our gross margin was impacted a little bit by a couple of things we've seen before, a little bit of product mix, a little bit of currency, but also a little bit of extra transportation costs due to the pandemic, where now transportation has become a little bit more difficult and also more expensive in certain cases. We believe, as we've said before, that our long term ambition is to stay somewhere between $60,000,000 $65,000,000 and we should be at that level also going forward. Our operating profit in the quarter was impacted by one off costs associated the acquisition of Raquel Acoustics of about $7,000,000 But other than that, our operating expenses in Q4 and also in the full year is according to our plans. They represent the investments we have been making for quite a while in especially the organization in R and D and in sales and related to all of our focus areas, our military business, our introduction of the intercom and also the entry into law enforcement more forcefully. So this investment in operating expenses represents 24 new colleagues during the year Invisio. And we see, of course, the full cost of that now, majority of the cost now in Q4 and for the full year. So no surprises for us there. The order book at the end of the year was $123,000,000 a little lower than the same time last year. And as we've said several times during the year, we can see that the pandemic have delayed especially larger customer projects because it is not possible for people to gather and do testing and also, yes, run all the activities needed for making new purchase on a larger scale. But we still see a good or have seen a good order intake of running orders, some smaller orders. So the order intake was acceptable during the quarter. I will now turn to Page 5 and just a quick overview of the last 5 years. As you might recall, we have an ambition to grow our sales or revenue in average with 20% per year. We are a little lower than now with 2018, but again, this fluctuates greatly between quarters and years. On the EBIT, our ambition is to reach at least 15%. And for the last 5 years, the average has been 22%. So we are well above that account. Now on Page 6, it is a picture that some of you have seen before, which is related to when we announced the acquisition of Raycom Acoustics. And the deal is now closed since end of January. And here, we bring together 2 of the strongest brands in the industry to complementary product portfolios and to make it easy understandable. You can say that the Invisio personal system is on one side. And then we have the Raykil system for high noise use in vehicles. The Enviso personal system is mainly for dismounted use. The regular system is for vehicle use of all types. And then we also had the intercom systems that Invisio has recently brought to the market. And it is clear for us that the offer of the 2 brands is complementary. It will help us to cross sell and also increase sales of both brands. It will support the Invisio Intercom system. It will empower the sale of RailCl in the U. S. Due to the strong sales presence that Enviso has there. And all in all, we will see very good collaboration across all functions that will give us many opportunities to work from. Last but not least, we will get a good strong footprint in the important U. K. Market. On Page 7, yes, just a view of the latest product that Radial Acoustics have brought to the market, a very advanced digital headset for use in very rugged environments with constant high noise. And these are tanks or military type vehicles with constant high news noise, sorry. And this headset is so called digital headset that gives best in class human protection, communications and televulity and situational awareness within vehicles. When it's digital, as we call it, it means that it is possible to customize the headset for use within certain vehicles, I. E, the customer is able to set it up for optimum performance within his own environment or for specific missions. So a very good addition to our common product portfolio. On Page 8, we have added to our reporting in the same way we have done for Envisio's addressable markets, we have added the Raquel Acoustics market. And to put it sort of easy to understand and calculate, I believe. First of all, regular acoustics is the market leader in a high noise market where there are only a few competitors. The uses for the products are mainly crews in large military vehicles, above all in Europe and in the U. S. When we count these vehicles, we come to about 1,200,000 positions or seats in these relevant vehicles. And that gives us a total addressable value of the market about EUR 7,000,000,000. And if we then estimate procurements at approximately 15 years interval, then the average annual market or addressable market is worth around SEK 500,000,000 to SEK 700,000,000. Swedish Kronos. This is, of course, a simple calculation and based on certain preconditions. The intervals are a little bit longer than what we normally see on our dismounted products, but this is related to long vehicle acquisition programs. And the information about the addressable market is included in the report that we have published today. On Page 9. Going forward, we will market both brands. So under the Invisio Group, there will be 2 product brands, Rekul Acoustics and Invisio. Both brands recognized globally for their heritage and expertise. And the Enviso brand predominantly for solar systems and portable intercom systems, what we call dismounted solutions and the regular acoustics brand for high noise solutions in vehicles of different types. And going forward, it is our intention that Regular Acoustics will become the center of excellence in the group for high noise solutions, and we will see that area grow as we expand our revenues over time. So in this way, we believe we can take advantage of the combined competences and resources across all functions in the Invisio Group. On Page 10, we have also seen a good development in other areas of our business despite the difficulties around traveling and so forth, we have seen a very positive response to the marketing of the the intercom system, we have been able to be out, visit certain customers, especially in the U. S. But also parts of Europe. And the response have been very positive, and we have a number of systems out for trial. But we've also received approximately 10 smaller orders from specialist user groups in the USA and Europe. And it is interesting for us to see that it's not only military special forces that take great interest in this, but also certain special forces within law enforcement and police. So all in all, in 2020, I think we have seen a development for our new intercom systems that we are pleased with especially during the current market conditions. On Page 11, we have also continued and strengthened our efforts with focus on law enforcement and security. As we said in the early part of 2020, we have invested in more sales members of our organization in both U. S. And Europe that could target law enforcement and security. And this is, of course, a long term activity, but we have now laid the ground, and we have gradually seen through 2020, an increasing number of distribution partners, but also an increasing number of quotes and orders from law enforcement and security customers globally. Again, this is a long term investment for us into the law enforcement and security market, and we believe that Envisio and also Regal Acoustics will be do have the possibility to become the global brand of choice also for law enforcement users. Now on Page 12. After the end of the year, we have started on a good note, we received an interesting order from a new elite force within the U. S. Military, a customer that we as often are not allowed to name, but a new elite force that now also have chosen to use Invisio Systems. And as always, this is an important reference for us from other company customers globally. On Page 13, elaborating a little bit on our strategic focus areas. We have, in 2020, also continuing actually seen good progress in new geographical markets, even though they have been hindered by the inability to travel under pandemic. But we have received a number of new initial orders from customers in the Asian region, especially, but also in the Middle East area. And as usual, this is how it starts, with smaller orders for specialist users. And then over time, this will develop into larger procurements as we move forward. And we will continue this focus on new markets in 2021 and together with regular acoustics also that also have a strong position in some of the markets in these new regions. We will finding the best way to market both brands in the new regions. Now last but not least, on Page 14, the Board has decided to propose a dividend of SEK 0.70 per share, which is a little lower than last year. And we have, I think, shown in 2020 that we have plenty of opportunities for utilizing the resources we have in the company, partly with the acquisition of Rekl Acoustics, but also with the continued investments into the organization in both R and D and in sales organization. So the Board of Directors believes it's prudent to stay within the policy for dividends that we have for Envisio and therefore, propose the amount that is mentioned here, SEK 0.70 per share. With that, I will conclude by saying that Q4 has, for us, been stable, I would say. Continued execution on the activities and the strategies we have set out on a long time ago. And even though it has been a very a difficult year because of the pandemic with a lack of travel possibilities and trade fairs, we have still fared relatively well, and we are optimistic of the opportunities that lie ahead of us in 2021. In the first part of the year, we will, of course, focus on integrating regular acoustics and Enviso, but we will also continue our long term investments, both in our new intercom system with the possibilities we see in all parts of the world, but also in addressing continuously the law enforcement and security market. So with that, I will end the presentation, and we open for questions, please. Yes, sir. Thank you. Ladies and gentlemen, we will now begin the question and answer And we have questions that came through, sir. Your first question comes from the line of Victor Westman. Your line is now open. Please go ahead. Thank you for taking my questions. I have a couple questions regarding your Raquel Acoustics. Can you say something about how many customers they have and what are their largest customers. And anything on the market share also? Yes. They operate a little bit differently than we do in the sense that they mainly sell through, where we can say system integrators and other companies that are parts of large vehicle programs. So when a vehicle program is sold into a certain country, then regular acoustics is often a sub supplier to the ones that are integrating communications and other parts of what goes into the vehicles. So that's the traditional operation model. We, of course, hope and think that with the combined efforts of regular acoustics and Inviso, we will be able to expand that also into selling more direct into certain customers. One example of that is actually that Rekle won the tender for equipping the Danish Army Dalo with their new RA4000 headset not long ago. So this is one example of where it has been possible to sell directly. Yes. I actually have a follow-up on the DALO In Denmark, do you have can you give any more details on what's included in these contracts? Is it just for tanks? Or are there other kind of vehicles, for example, for the year? It is for transportation vehicles and for, I would say, a range of without going into all details, it's not only tanks. It is for a range of vehicles where this type of headset is needed. And what Rekul provides is a full solution of headset, but also a light bumper helmet, if you like, for the user. So it is a package for the users that are in those vehicles. Yes. Okay. And the last question also on what happened It's with regards to what happened with the U. S. Marine Corps. Do you see any risks For other customers that they will not get the financing necessary? Or was this situation a special case, an exception? I mean it is as we've said many times, we are absolutely certain that the global trends are working in our favor in the sense that everyone will need modern radio communication and everyone needs hearing protection. But it is hard to predict exactly how fast the rollout will be of personal individual radios. And in this case, it is our understanding that for at least a period of time, the majority of users in the Marines will primarily will be needing hearing protection only, I. E, ear cups with hearing protection and not everyone will have a radio system. And that's why the solution they are requiring right now is not exactly what we have in our portfolio. But I'm sure that in a not too distant future, there will be a rollout of radios to Marines and others that today does not have a radio for everyone. So it is a time delay. And of course, it's the same development we see in many parts the world where people are going from non radio to or no radio to some type of radio. But the timing is difficult for us to predict. Yes. And let me please just squeeze in one last quick Question also on you mentioned the drivers for your traditional business. What does what do they look like For Raquel Acoustics, do they also have modernization drivers? Or is this market more mature, would you say? Well, to some extent, you can say yes. I mean, in the early days, the market for vehicle types or vehicle products were the drivers in different vehicles, but also the crews in different vehicles. And I think that is still the same, but there is a tendency to the border between being in a vehicle and being out in the field are sort of yes, disappearing a little bit, many users are both during transport, but they are also out in the field. And there are many different ways of obtaining a perfect solution for each individual customer. So Rekle has a very long history in providing fixed installed, also headsets for different types of vehicles that have a good market share in many markets. That is definitely a market that will continue to exist for a long time. Thank you so much, Lars. You're welcome. Thank you. And the next question comes from the line of Jasper Burt Johnston. Your line is now open. Please go ahead. Good afternoon, Lars. A couple of questions from me. Just starting off with the gross margin in the quarter. As a revenue mix there, I mean, perhaps 59%, perhaps a little bit below what we could have you kind of have come to expect that these revenue levels, is there any 3rd party modules gross margins this quarter? Or was it solely your own products? Yes, there was a little bit of it was a combination of 5, 6 things, a little bit of 3rd party products, a little bit of a couple of older products that we have been selling where the gross margin was not so high where we got an order for and yes, just the mix in general. So I think this is just yes, down to the usual fluctuations we see between quarters. And so we should be up again in not so distant future. But also there is a little extra related to transportation and all that here because of the pandemic, it is more expensive to it's much more expensive to transport things around now than it was just a few quarters ago. Got you. And also, you mentioned at the start of your presentation here that several Orders or projects have been delayed due to COVID-nineteen. I mean, would it be possible for you to give an estimate of what type of order value has been delayed In total? No, we don't do that. And I think also it would just be guesswork because again, we don't full insight to the size of the opportunities that the customers will be working on. And I think, as we've said before, the challenge we have sometimes is that everything that our customers works on also on a bigger scale is always for longer term modernization program. It's very seldom that it is urgent. So they need it in big numbers here now, it is always on a little bit broader scale. And therefore, when the pandemic has hit now, they are able to just postpone it for a quarter or 2 and then come back hopefully when things are turning back are getting better. So yes, and especially now, I think we are seeing a little bit of light now in the U. S. Also because there at least it is possible to travel. And after the new administration is in place, a lot of people have been changing positions. So now surely but slowly but surely, people are getting into place in their new positions. Thank you. And My last question is on Raquel Acoustics. And I know when you announced acquisitions, we talked about the gross margins, which could be a little bit lower than And this is due to Raquel selling through partners or sales being driven by partners. But could you comment on what types of EBIT margins are you expecting in perhaps 2020 and 2021 for Raquel? No. Again, we don't want to give any predictions, but I think that it looks good. We don't have any surprises, so to speak. We are happy with what we have seen when it comes to gross margins. As I've said, I think we can, within short, be able to be at a level that is, close to where Invitio is today. So it should be possible for us to have a good contribution from Regal as well as it looks. Thank you. That was all the questions for me. Welcome. Thank you. And the next question comes from the line of Yi Yu. Your line is now open. Please go ahead. Hi, good afternoon. Thank you for taking my question. I have 3. Firstly, I'll ask you, Kimi, you have a complete product portfolio after the RECOR acquisition. Would you consider to add more direct sales in other region outside the U. S? And is it possible to give us an indication Your OpEx budget for 2021. Secondly, so you have mentioned that Rayco's products, So the high noise, I have said. And Magna 4000 is one of the best in class in the market. And maybe could you comment a little bit on their mid- noise asset and how would you compare it to the competitors. And thirdly, the regarding the larger contracts, Which you received in 2019 from the U. S. Customers. Could you clarify if you have got any of the orders Under those contracts in 2020? And what is your visibility for the first order or follow-up orders in 2021? I'll jump back. That will be my question for now. Yes. I'm over 50, so I can't remember all of them. I've forgotten already. But the last one, Wei, about the orders, I think, I mean, as in late 2019, we were awarded a large frame order agreement for $30,000,000 at the time. And that one is being utilized. We have received order under that contract in 2020, and we also expect to receive good orders under that contract in 2021. So that is definitely still in active. And even though the pandemic has been tough on many, I would say that the budgets are there. So it's not like the military budgets have been heavily reduced or anything. The budgets are still there, and we, of course, believe that at some point when people are returning to their offices that they will be spending the money that they have in their pipeline. When it comes to vehicle products and medium noise, yes, we the RA4000 is definitely the most advanced headset out there today. It's a brand new digital platform, as I said. And that means that you are able to customize it in the environment of the customer in their vehicles, and that is new to the market. So that is a product that that will be competitive for a long time to come. In medium noise, yes, there are also products available, and we have not revealed everything that Regal Acoustics have and that will come into the market. But they also have products that have been in the market for a while, there's a product called 5,001, I believe, Raptor, which is, I believe, the most sold headset ever for vehicles. My understanding is it has sold more than 500,000 pieces in history. And it's still a product that is very popular and is still being sold into both existing and new customer contracts. So there is a range of products there that are, yes, legacy, but are very popular and very well proven in the environments where they operate. Your first question, can you repeat that way, please? Yes. It is giving you have a complete product portfolio after RECORCUSSATION, which consider to add more direct sales in Europe. And also, if you could give us an indication on your OpEx budget for 2021. Yes. So I think, yes, I mean, one of the things that differentiates Enviso towards anyone else in our industry is actually our sales machine, if you can call it that. We now have more than 20 people in the U. S, 25, and we have a larger number for Europe and the rest the world. So we have a sales team that no one else can match in the industry. And of course, once we have now started working closer to or more successful in certain new areas. And if that means adding more salespeople, yes, we will do that because it could mean that the combined portfolio of Raquel Acoustics and Invisio in a certain region would make it even more attractive for us to add 1 or 2 more salespeople. So definitely, this is something we look at. But I would also say at this point in time, we are a little bit cautious about increasing our OpEx in terms of sales people because we just want to see how the integration is coming on. We need to get to know each other. We need to understand what competences they have, what we have and where we would then need to grow from there. So the first half of twenty twenty one will definitely be sort of a a starting phase and finding out where we stand with Regal and Inviso together. Great. And just one follow-up on the U. S. Contract. Apart from this framework agreement with U. S. DoD, And I remember you also had a 2 long term contract with Special Force, different units of Special Force. Could you also confirm that you have if you have received any orders on the deals we have in 2020? Yes, we have. Yes. Yes. Thank you. And no further questions have came through at this time. Sir, you may continue. So if there were no further questions, then thank you very much for dialing in today. And I will talk to you again after our Q1 in April. So thank you, everyone.