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Edited Transcript of IVSO.ST earnings conference call or presentation 28-Oct-19 9:00am GMT

Q3 2019 Invisio Communications AB Earnings Call

Hvidovre Jan 3, 2020 (Thomson StreetEvents) -- Edited Transcript of Invisio Communications AB earnings conference call or presentation Monday, October 28, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lars Højgård Hansen

INVISIO Communications AB (publ) - President & CEO

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Conference Call Participants

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* Viktor Westman

Redeye AB, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to today's presentation of INVISIO Third Quarter Reported 2019 Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today on the 28th of October 2019.

I would now like to hand the conference over to your speaker today, Lars Højgård Hansen. Please go ahead, sir.

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Lars Højgård Hansen, INVISIO Communications AB (publ) - President & CEO [2]

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Thank you very much. Good morning, and welcome everyone to our quarterly update. Our Q3 report is really important to INVISIO. We believe that it constitutes a milestone in the development of the company due to some new agreements that we have been awarded during the quarter, but also shortly after the quarter.

So this period has been very successful for us. We have won the prestigious procurement for The American Marine Corps where we see great potential for the coming years. We have also been awarded a long framework agreement with the U.S. Department of Defense for USD 30 million, corresponding to almost SEK 300 million. And in our European market, we have expanded with yet another army customer, which is the Belgian Army. And last not but not least, we have made a strong entry into the police and law enforcement market where we started in Q2 by gaining some strategic agreements. And also in Germany, we have now in a successful way won contracts with the Swedish Police that I would get back to. So these substantial successes is definitely something that will continue to contribute with INVISIO's growth over the coming years.

We will turn to Page 4, which is our numbers in short. We have revenue of about SEK 110 million, which is 35% up against last year. And for the 9 months, our revenue was up with a little more than 20% to SEK 313 million, making it actually the highest 9 months' period in the history of the company.

Our gross margin was still very good. It was impacted though by a couple of shipments with lower margin. As we have said before, some time we deliver third-party products that can impact our total margin. In this quarter, we've had one such delivery and we've also had a delivery to the U.K., where the British pound has been lower and has impacted us during the quarter. But other than that, gross margin for our deliveries is very good and in line with the 9 months' number of 60.7%. So still very strong gross margin.

Our costs are at a level where they are in line with our own internal expectations. As said many times, we are growing the company. We have a number of growth initiatives internally and we have been adding people in several areas, sales, marketing, R&D, and we will continue to do so at -- in areas where we see a good business case for it.

At the end of the quarter, our order book was SEK 82 million, which is comparable to last year, but it's of course also important to remember that we have shipped more during the quarter than last year.

On Page 5, just shortly, the diagrams that we introduced a quarter ago, just again to accentuate that our quarters do fluctuate both in terms of order intake as you see on the right-hand side and sales as you see on the left-hand side. But when we do the rolling 12 months average on sales, the trend is positive and growing.

And on Page 6, we now turn to some of the important events we have seen. As said, we were selected by the U.S. Marine Corps for their new hearing enhancement program, and we received the first order of SEK 43 million. We have not received any further information more than what they have said publicly that they expected to equip between 7,000 and 65,000 users over the next 3 years with hearing protection. So of course, we do expect follow-up orders from these customers over the coming years. As for all U.S., their financial year starts October 1. And therefore, their new budget year will commence as we speak.

On Page 7, we, as we communicated, have been awarded a 5-year contract with the U.S. Department of Defense with the maximum value of USD 30 million, and this is a contract that replaces the first one we received in 2017 that expired due to the fact that they had spent all the money in that contract. So we have good expectation that even though we are not guaranteed anything, we have good expectation that they will, over the time period, use the money that are available in this framework agreement. So this is a huge agreement for us. And of course, it's something that will help us quarter by quarter as orders will come in from this customer.

Page 8, in Belgium, we have worked together with Thales Belgium on a program that consists of new radios and hearing protection equipment for the Belgian Army. We were successful and have been awarded the contract together with Thales. We received the first order for about SEK 30 million, and we do expect a follow-up order shortly for about SEK 20 million. But even with that, we -- as with other armies, we see long-term potential for further orders from this customer once they start using our equipment and rolling it out to the users.

Then on the next page, we are very proud to see that we have been chosen by the Swedish Police in 2 different framework agreements. We have been chosen to equip what we believe is the majority of the Swedish Police with hearing protection and communication solution. We, again, are not guaranteed any volume, but our own estimate is that this could be between SEK 50 million and SEK 75 million over the contract period. The contract is there for 2 years with possible extension of another 2 years, and we have received the first order now for SEK 19 million that is due to be delivered before the end of the year.

As said in the second quarter this year, we had a strategic order coming from the police force in Germany and now Sweden. And as we saw on the military market in the early days, where we in 2012 were awarded the order to equip the entire Danish Army, that was a phenomenal reference order to take to other customers around the world that you win on your home market and you have such a broad program as this. And we believe that winning the Swedish Police is a similar magnitude of a program that gives us a strong reference. It's a reference we can take to other customers in other markets where similar requirements and needs are and that this can be sort of a starting stone for other markets to follow. We are, in November, going to be present at the yearly Milipol trade fair in Paris, which is a law enforcement and security trade fair where, of course, also these solutions will be presented.

On the next page, we just wanted to make a short summary of our achievements in the U.S., where we are now very clear market leader. We have since 2017 where we decided to open our own sales office in the U.S. We have been working very hard and we've been very successful, and this is just a listing of some of the achievements from 2019 that we were assigned the GSA status in January, which is a distribution and buying mechanism or vehicle for government customers to be used on all levels.

In May, we were awarded the CASL program from the U.S. Special Operations Command with the first order of SEK 110 million. And now as communicated, we have been selected by the Marine Corps and we have been awarded this 5-year contract with the Department of Defense. So there's no doubt that we have a very strong platform in the U.S. that we can continue to grow from in the years to come. And this is, of course, right now, mainly for our existing products, which is the hearing protection and communication products.

As most of you will know, we are also soon entering into this new product category on Page 11, which is our intercom system that we have a huge opportunity to grow from, but also to introduce into our existing platform of customer. We have now shown this product again already at the trade show in London in September and a similar trade show in Washington now in October, and have received very high interest in this product.

We have, let's say, a controlled rollout of this product where we work with strategic customers first to make sure we have good introduction of the product into the market. So as said many times, this is not for short-term revenue. This would be 2020 at the earliest, but this is something that over time will hopefully significantly contribute to the company's continued growth.

But for now, we have a lot on our plate with our existing products, on Page 12. I think that with the agreements that we have been awarded in Q3 and shortly after and with all the product activities, investment we have made over the last 2 years, we are seeing very interesting growth prospects for INVISIO and we have every reason to be positive about INVISIO's continued growth journey.

And with that, we conclude the presentation. And operator, we are now open for questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Viktor Westman.

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Viktor Westman, Redeye AB, Research Division - Analyst [2]

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First one is on Belgium there. So you mentioned in the report that all these new contracts, including Belgium, will contribute to a large extent during the coming years. Just curious about how you're thinking about Belgium as it's a relatively small army, I mean, besides the SEK 50 million?

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Lars Højgård Hansen, INVISIO Communications AB (publ) - President & CEO [3]

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Yes. And of course, everything is relative. But I think in its own rights, as we have seen also back to 2012 when Denmark was the first army we won, the relationship with Denmark was renewed in 2018 with another 5-year agreement. So meaning that for more than 10 years, 12 years, we have been a sole supplier to the Danish Army. And they do buy a good amount of products every year.

So once you get into an army, even though it is the size of Belgium, it is still very good because we know that there will be customers of ours for a long time and they will be ordering more products every year for more soldiers, but also for upgrading and for replacing. So getting into a new customer like that is always something with a good potential for years to come.

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Viktor Westman, Redeye AB, Research Division - Analyst [4]

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Okay. And a follow-up on that is that I get a feeling that all the SEK 10,000 average per soldier that might be a low number. Can you comment on that?

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Lars Højgård Hansen, INVISIO Communications AB (publ) - President & CEO [5]

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Again, that is customer specific. It depends a little bit on how complex a solution the customer is ordering. So for instance and also whether it's a law enforcement customer or whether it's a police customer in terms of how many -- for each soldier, how many cables, is it more than 1 headset and so on. But -- so I don't think we have an official number to state more than the SEK 10,000 as an average. But it's -- you're correct. Certain customers are definitely higher than SEK 10,000 in average.

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Viktor Westman, Redeye AB, Research Division - Analyst [6]

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Okay. And the last question on security forces. So you remember, a few years ago, you had a nice order from the French security forces during the European football championship. Can you comment what's happening in this market? Is that -- do you include that in the police market or is there a specific certain market?

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Lars Højgård Hansen, INVISIO Communications AB (publ) - President & CEO [7]

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It's a specific market. And we are looking into how we can quantify it and we will get back to that sometime in 2020, but it's definitely a specific market outside our normal military. I think what we have seen over the last 2 or 3 years is that, of course, due to requirements on hearing protection and due to many of the, let's say, increasing amount of activities that the police are involved in, there is definitely a huge demand. It just takes time because like in the military, also the law enforcement in each country need to upgrade their communication and that can be radios and all associated equipment. So it takes time, but there is a clear trend in several markets in many markets that police and law enforcement are getting more and more resources for being more efficient and being better protected.

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Operator [8]

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(Operator Instructions) The question comes from the line of Viktor Westman again.

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Viktor Westman, Redeye AB, Research Division - Analyst [9]

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I can continue with another question I was thinking about. In the Middle East, what's the limitation there? Are there a lot of countries that you cannot sell to due to political issues?

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Lars Højgård Hansen, INVISIO Communications AB (publ) - President & CEO [10]

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I think what we -- first of all, as we said many times, we are not classified in any form or shape as defense equipment or military. So we can, in theory, sell to anyone we want. But on the other hand, we also try to see where the radio manufacturers are. So again, we cannot sell anything without a radio being present. So we are looking very much to where is it that the U.S. radio manufacturer companies are selling their products like Harris and Thales and General Dynamics and Motorola. So we follow the radio, so to speak.

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Operator [11]

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(Operator Instructions) Dear speaker, there are no questions at this time. Please continue.

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Lars Højgård Hansen, INVISIO Communications AB (publ) - President & CEO [12]

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Okay. If no further questions, then we would like to thank you for your participation, and hopefully talk to you again after Q4. Thank you, all.

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Operator [13]

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That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.