Good morning. My name is Max Strandwitz, and I am the CEO of Mips. I will take you through the Q3 results. If we start with the key highlights, we did see strong performance in the quarter with 94% net sales growth. We did see an organic growth of 108%, and the increase in sales is mainly driven by sales to bike helmets. You also need to remember that we had a soft comparator in prior year due to the implementation of tariffs. We continue to see high customer interaction with a large amount of new projects in all the three categories we operate in. We did launch our first Team Mips, and first athlete out is the skier Henrik Harlaut. We do see good consumer demand, mainly driven by sales to bike helmets. Good growth anticipated also coming quarters, and our long-term financial target remains intact.
If we then turn to next page, I am on page number three. If we start with bike, we do have a high demand for solutions in bike helmets. I don't think that anyone has missed that there is a large demand for bike and bike helmets, and anyone that tried to buy a bike helmet or a bike in the quarter have struggled. Inventory in retail are very low, and we do expect to have a high demand situation that will carry over to 2021. We see an increase in bike helmets both for commuting and recreational use, and it's all over the world. It is important to note that historically, bike helmets volume has been concentrated in Q3 and Q4. However, due to the extreme demand situation, we do expect high production also to continue into 2021. If you then turn to next page.
In snow, we did actually see some recovery in the quarter, but still soft numbers for the year. We see an improvement in sales to ski helmet manufacturers in the quarter, mainly relating to late orders due to the pandemic situation. The uncertainty of winter holiday season remains. Booking situation at ski resorts has improved versus last quarter. Infrastructure challenges at ski resorts remains, and that is, for instance, how will you manage restaurants at ski resorts and also how will ski lifts be arranged. Even if there is a strong season, there is a limited possibilities for brands to react to the sales uplift, given the heavy demand situation in bike and the limited capacity at the factories. Due to the current restrictions, the outlook for the winter season may change rapidly, and I don't think anyone can say exactly when this will end.
If you turn to next page, Moto. We did see strong sales and volumes improved versus previous quarter as we communicated before. We do see a similar trend in Moto as in bike, of course not to the same magnitude, people do want to avoid public transport. More brands is launching with Mips. We did launch our first solution with BMW in the quarter. Demand is supported by the implementation of the new standard, ECE 22.06, which I also started talking a little bit about last quarter. Which includes rotational motion in the test protocol, which is exactly what Mips address. This is actually the first official test standard that has rotational motion in the test protocol. We do see a good consumer demand, we do expect it to continue coming quarters. If we turn to next page. Safety.
We are lined up for a good 2021. We do see good interest in the safety category, both from helmet manufacturers and construction companies. There is an intensified debate and media attention around work-related injuries with focus on brain traumas. Mips will publish a scientific publication within short explaining the injury statistic and how brain injuries are overrepresented in serious accident and why it's important to address that. We do only announce new brand when first orders are delivered, and we do see an increased interest of Mips internationally and volumes will start to ramp up in 2021. If we then turn to next page. I'm now on page number seven. I'm happy to say that we are launching Team Mips. Mips should be the obvious choice when buying a helmet. This is a strategic initiative and to increase the awareness of the Mips brand.
We did start a revision of the brand platform, and that has been done. Several activities have been rolled out. One of them is to create the Team Mips with Mips ambassadors. Henrik Harlaut, the most decorated X Games skier in the world, is the first athlete to join the team. He is a great Mips ambassador through his dedication to safety. Additional athletes will be announced coming month. This is a great way to increase the overall awareness of the Mips brand. If we go to next page, I'm now on page number eight, and if we look at the development of the different categories that we operate in. First of all, in sports, we saw a good growth of 91% in the quarter.
We now have 102 brands in the sports category, which is up three versus the last quarter, two more brands in snow, and one in equestrian. In moto, we saw a growth of 142%. We have one more brand in the quarter, and that's actually BMW. In safety, it's still early days, but as I said before, volumes will ramp up in 2021. If you then turn to next page, if we look at the financials and the development in the third quarter, we did see a net sales increase by 94%. Organic growth was 108%. We did also see a strong increase in gross profit of 91%. Gross margin was down with 80 basis points in the quarter to 72.2%, due to the high amount of projects that we are running, the project revenues that we have in our net sales has an impact of margins.
You can sort of say it's the sales mix effect, and that's the explanation why the margin erosion. OPEX, we continue to invest in strategic priorities. EBIT was SEK 55 million for the quarter, up versus SEK 20 million in the year before. There is a strong EBIT margin of 53.6%, and this is actually the first time when we are above 50% EBIT margin. It shows that we have a very scalable business model, and with the strong growth that we saw in the quarter, that becomes even more visible. Also in cash flow, we saw a strong increase of operating cash flow in the quarter. If we look at the financial KPIs, organic growth 108%, EBIT margin 53.6%, and we did see an operating cash flow of SEK 29 million in the quarter.
We then look and turn to the next page, the development of the first nine months, we do have a growth of net sales of 24%, organic growth 27%. We see a similar trend in gross margin. Gross margin is down in 120 basis points to 72.5%. We adjust for acquisitions, we see a deterioration of gross margin of 60 basis points, and also here it's an effect of the sales mix fully explained by the high amount of project revenues that we see. OPEX, we continue to invest in our strategic priorities, which is R&D and marketing. Adjusted EBIT is SEK 92 million. We do see an adjusted EBIT margin of 41%. When we talk about adjusted margin in year-to-date numbers, it's to isolate the effect of the acquisitions that we did last year. We do not adjust for the cost in Q3.
Cash flow, we do also, on a year-to-date basis, see a strong increase in operating cash flow to SEK 66 million. Financial KPIs, organic growth 27%, adjusted EBIT margin 41%, and an operating cash flow of SEK 66 million. Now, also year-to-date numbers are solid after a rough start of the year. If we look at the balance sheet and the cash flow, we do see a strong improvement of cash flow from operating activities. Cash and cash equivalents are at SEK 233 million at the end of the quarter, despite paying dividends. Mips does not hold any loans, and our equity ratio is 84%. If we turn to the last page and the summary and summarize the largest quarter so far in Mips history, we did see a strong quarter, mainly driven by good demand for bike helmets.
The increasing demand is expected to continue into next year, assuming no dramatic change to the current situation. We did have an EBIT margin for the first time about 50% in the quarter. We continue to have high project activity, strong momentum in all the three categories we operate in. I'm happy with the rollout of the new brand platform, launching the Team Mips, and we are in a good position to deliver according to the 2025 plan. With that, I open up for questions.
If you have a question for the speakers, please press zero one on your telephone keypad. Our first question comes from Adela Dashian from Handelsbanken. Your line is open. Please go ahead.
Yes, good morning. Let me start off by congratulating you on a great quarter. Good recovery from the first half of 2020. As it relates to my questions, my first question is about the sports category. If you could please tell us how much of sales within this category is related to bicycle helmets versus snow helmets?
Yeah. Thank you, first of all, for the congratulation of the results. When it comes to the proportion of sales relating to bike helmets, almost all is relating to bicycle helmets in the quarter.
Got it. Secondly, on the safety category, you said that we should expect to see growth numbers in 2021, but how material will that be, and will it show in your sales breakdown? What pace do you expect the safety category to be growing at? Should we expect volume from that category to be greater than the moto category, for example, due to it being a much larger market?
Yeah. First of all, we are just starting in the category, and like I said, we do see some interest. Like I've also explained before, when we look at our long-term financial target, the growth priorities are, first of all, grow with the customers that we already have in sports. That we are doing already at the moment. The second thing is to replicate what we have done to sports also in the moto category, and that's the second biggest growth driver. In the category 3, which is the safety category, even though that's the biggest potential category for us, we have just started, and that's why that is the smaller part of the plan. Like I said, it will be a substantial part of our plan by 2025. Exactly how quickly that can go, I don't think anyone can answer.
What we do see at the moment is that we see a good interest both from the helmet brands, but also from the construction companies. There has been a lot of articles, especially in the U.K., about the severity of brain injuries at construction sites, and of course, we are reaping the benefit of that.
Do you expect 2021 to be the first year where it will start to show in your sales breakdown?
Yes, you will start to see some numbers in the sales breakdown, but it will still be our smallest category.
Got it. Then finally, could you please explain also the difference in margin for the three categories and maybe also the difference in revenue per unit sold?
Mips is a small company. We try to keep it quite simple, and that's also one of the key reasons why we have a very scalable business model. It's not a huge difference in terms of revenue or financial model for us. We do attract a high gross margin, and we do that independently of which category it is. We have a very scalable business model, and that's how we operate. Of course, when you look at the safety category, since we start at lower volumes and we have a volume-based price model, you could assume that in the beginning you could see higher prices. Over time, we expect it to flatten out and be comparable to what we see today.
Thank you.
Thank you, Adela.
Our next question comes from the line of Daniel Thorsson from ABG. Your line is open. Please go ahead.
Yes. Hi, Max. Also, congratulations on a very strong quarter, of course. First question on OPEX. That was lower than I expected in Q3, and most specifically to R&D. That is actually declining year-over-year and quarter-over-quarter. What is really sustainable and temporary in the OPEX here?
Yeah. Of course, thank you for the congratulations of the results. I think our R&D work is extremely long-term, and we of course don't manage it on a quarterly basis. For us, it is important to have a long-term R&D plan. If you look at the year-to-date number, we are at 5%, and that is fully within 5% to 7% of the guidance that we have given in our long-term ambition. Yes, you will have individual quarters that might be higher or lower depending on which projects we are running. Long term, we are still sticking to the plan, and the year-to-date number of 5% shows that.
Okay. Any other temporary effects in selling expenses or admin due to less traveling or remote working or anything that you expect to come back a little bit in Q4 or Q1?
No. Of course, we are constantly adding and increasing our investment to key priorities like you already started on, which is R&D. In marketing, we are continuing to roll out our brand platform, which you also start to see an effect of. There is, of course, some costs that don't happen in a quarter like Q3. For instance, the biggest bicycle fair in the world did not happen because of the pandemic situation. For us to just bank on that money is a little bit short-term. What we have done is, of course, continue to invest behind the brand instead. We also need to be much better at presenting ourselves in a virtual environment. We didn't, so to say, save any of those costs, but rather reinvested them into our business.
You will see costs going up, but as you also see in our margin, we have a very scalable business model.
Okay. Fair enough. CapEx in the quarter was SEK 5 million versus historically basically nothing.
Yeah.
An explanation for that?
Yes, we have just moved, or actually in the beginning of January, we moved to new facilities to be able to facilitate our growth plan and also to be able to really show that we are for real in the safety category. When we moved, we also started to do a bit of refurbishment of the office. The SEK 5 million that you saw in the quarter is mainly relating to improvement of the new facility that we have moved into. It is a one-off thing.
Okay. Excellent. A question on the negative net working capital here as well. It is obviously a result of the strong growth.
Yeah.
Is this level a normal level based on basically 100% growth rate? Have you had any changes in payment terms either way, or bad debt recently?
No, we didn't have any changes in payment terms, and we actually didn't have any bad debt in the quarter. We have seen, as you also see in the operating cash flow, that it has improved. Of course, if you grow with almost 100% in a quarter, it will have effect on your accounts receivable. I would say it's sort of normalized, if you can call a close to 100% growth normal.
Yeah. That's good. Lastly, a technical question here, but the FX effect in the quarter seems to be -14%, but in my model, the USD is only down 8% year-over-year versus the SEK. Anything I'm missing there?
Yeah. What you do is when you have an FX effect on growth, so if you wouldn't grow anything, you would see exactly that number that you see. Since we are growing, the comparator gets extrapolated, and that's why you see almost a double effect on the impact from FX.
Excellent. That's all.
Okay. Thank you, Daniel.
Our next question comes from the line of Fredrik Moregård from Pareto Securities. Your line is open. Please go ahead.
Thank you. Good morning, Max, and everyone else. First off, a follow-up on Daniel's question on the cost base. Coming back to R&D, if you're going to keep within the 5%-7% of sales range for the coming years, I would assume that you need to add quite a lot of people going forward to that organization to drive costs. Can you give us some hints of where you think you need to add employees to support your growth?
When we talk about our R&D cost, we have two different time horizons. One is our product development work and our new solutions, and as you know, we are adding new technical solutions all the time, and we are putting a lot of investments into that. We also come out with new solutions in constructions to be able to better adapt to that category. Then we also have the long-term R&D work, and that's the work that is heading up by Peter, and that is what is our next steps when it comes to helmet development. There we are increasing our investment in FE modeling to really be able to do virtual testing, experimental testing of helmets before they even exist.
That you sort of see already in the car industry, and that is something that you would never manufacture a car without actually knowing how it will perform. We are doing similar type of investments there. We are recruiting FE engineers to also to be able to offer that kind of service to the brands that we're operating in or with. There is two things that we're investing into our R&D. Short term, to develop new products. Long term, to make sure that we have the right capabilities for the future and that we always have the superior technology.
Okay. Very good. On the sales teams, I guess, first of all, the sports team that you have or the selling team for the sports categories, how set do you think that is? Do you need to grow that in order to address the sports categories even further? Are you sort of more or less fixed with regards to that cost base and adding cost on the sales side would rather be to moto on the safety categories?
Yeah, I think on the sports side there, of course, we have been going into more of a penetration game, and you could probably see one or two person being added over the years, but I don't see a big expansion into that category. When it comes to motorcycle, you will probably assume that it could also be one or two heads that would be added. When it's into safety, it's not necessarily salespeople that we need to add. The market is quite concentrated, and it's not like there is an enormous amount of bigger brands that we operate. There, the go-to market model is different, and it's much more about education. It's about co-partnering with the brand to go out to construction companies and explain why you need to have Mips.
If you still add them to the sales team, yes, then you will see more people coming on board. Construction or industrial helmet is quite scalable because it's a much more concentrated market than we see in the other categories.
Okay. Very good. Question on the industry capacity. You say that you expect the bike boom to spill over into 2021. Are you hearing anything from customers about considering capacity expansions and so on? How long do you think it would take to refill inventories at the current production pace?
Yeah, I don't know any exact number. The view of the industry is that this will continue somewhere into mid-2021 before all the stock has been replenished. There is capacity expansion. There is a couple of new factories opening up in China at the moment. We all know with factories that it takes some time to commission them and so on. Yes, there is more capacity being installed in the industry.
All right. Thank you very much.
Thank you, Fredrik.
Thank you. Our next question comes from the line of Carl Bredengen from Berenberg. Your line is open. Please go ahead.
Hi, Carl from Berenberg. Very strong quarter, very good to see that growth is back and that obviously Q2 was a one-off. I just have a few questions on, obviously, we're seeing a significant bike boom now. People restocking, as you mentioned, it continues to be strong. This year, it was sort of weaker comps last year, so I'm not discrediting you for a very strong quarter, but there were some sort of easy comps due to the trade tariffs affecting it last year. If we look at the growth rate for Q4, which has tougher comps, what should we actually expect in terms of growth? Are we more on this sustainable level in terms of absolute numbers, or should we continue to see similar year-over-year growth as a percentage for the Q4 numbers? If you can just.
Yeah, I think if you look at Q3 is an exceptional quarter, partly because of the comps, but also that we saw that the bike season started earlier. Q4 is the most capacity-utilized quarter in the industry of the year. Even though that you see a lot of growth, there is also a threshold that we need to meet when it comes to capacity utilization. I think Q3, very exceptional quarter. Q4, we do see a good quarter ahead of us. We do not give any forward-looking statements. Of course, we still hold on to our long-term plan for 2025. There is good momentum in the industry, so there is no secret around that.
Okay, good. Secondly, if we just look at the wider customer concentration, we can derive from looking at the different websites and all the brands you work with and all the different models, that there are some 25% model penetration based on how many models offered and how many of them come with Mips. You continue to grow a lot within your existing customer base. How should we think about the penetration and the continued growth trajectory for you just to continue to grow really by expanding its product offering through Bell, Giro, and all the other brands? We assume that the unit penetration is obviously significantly lower.
Can you tell us a bit about the ability to grow within the existing customer base and how that could potentially offset if we were to see a flattening curve of new customer wins?
Yeah. It depends a little bit on which category and which type of helmets you talked about, but I assume that you mainly concentrate around bicycle helmets.
Yes.
There, of course, you're right. The main part of the growth is coming from existing customers. If you look at the customer concentration, we have nine out of the 10 biggest brands in bicycle in the world. Of course, we don't only sell at quite low penetration. That's where the growth is coming from at the moment. If you look at what we have included in our long-term plan, it's growth from our existing customers. Even if we get new customers, they will only have a material effect on the long-term plan because we already have the big ones on board.
Okay. That is very interesting. For snow or for moto, I take it that obviously you have still a significant potential to grow in new customers as well.
Yeah.
Okay. That concludes my question. Thank you very much. Again, congratulations on a strong quarter.
Thank you, Carl there.
I remind you that if you would like to ask a question, please press 0 one on your telephone keypad. There are no further questions at this time. Please go ahead, speaker.
Yes. Thank you, everyone. We leave a solid quarter behind us, and let's speak again at Q4. Thank you.