RTX A/S (RTX) Q3 2026 Earnings Call Transcript

Welcome to RTX Q3 webcast directly from the headquarters here in Nørsundby, close to Aalborg. And here we have Henrik Mørk Månsen, CEO in RTX and CFO Mille Tram Lux. Shortly you will take us through the Q3 numbers and after that we will go and look what's behind the numbers and the upgraded guidance and the added share by back program and all those things. But most of all We would love you to send in a lot of questions and you can do that by pushing the Q&A button and just send it in to us and we will get it on the screen and you will try to answer the best you can on the numbers and the questions. So let's get started, Henrik, you start.

Yeah, so thank you very much and welcome to all of the attendees. Yeah, let me first give you a short introduction to RTX. Some of you might know RTX. Yeah, and some of you might not. So who's RTX? Well, basically, we've been working with developing wireless communication solutions and products for a critical environment for more than 30 years. And our main speciality are three segments where we deploy our technology. So one is enterprise, where we deliver headsets and handsets to different environments, such as warehouses and office buildings. One place where you might find our products is if you go to the local grocery store, you'll find these push-to-talk headsets that really enable good customer service and safety for office staff. So that's where you'll find our products. We also have a segment into healthcare where we develop a wireless infrastructure for monitoring of critical heart patients. So really allowing heart patients to freely move around because they are connected to surveillance equipment wirelessly. It also allows the clinical staff to have a more optimized day-to-day work because you can do centralized patient monitoring. And then finally, we actually also deploy our technology as a chip where we enable our customers to building wireless solutions with secure and wireless technology. And that can be deployed in anything from defense, first responders, but also into professional audio. And we do all of this in an OEM model, so you won't find the RTX brand in the store, but you'll find our partners' brands in the store, partners that we've been working with for decades, the likes of HP, Cisco, Philips, Alcatel, that brings our product to market. So that was the very quick flyover from RTX, and then I'll hand over to Mille, who will lead us to the Q3 results.

Yes, just in a few minutes I'll take you through the main results for RTX. The first nine months revenue went up by 8% corrected for constant currency, gross margin increased to 54.8%, up 4.1% compared to last year, and EBITDA rose by 35% compared to last I'll dig a little bit deeper into those numbers just in a second. The last thing that happened in Q3 is that we extended the current share-by-back program we had last year. We approved a share-by-back program of 20 million and we extended that with another 20 million in the quarter. So if we take the highlights, the next slide, yes. we see a revenue of 150 million for the first for this quarter and 416 for the full nine months you see in the graph on the right there you can see the distribution between quarters and a relatively even distribution compared to last year but an increased profitability that leads me to the next slide which is the gross margin where we see an increase both when we compare to the third quarter last year and when we compare to the first nine months of last year and when we compare to the full year and the reason for this is the split between the segments first i'll just take you through to the development of the EBITDA because with the business that we have the the the impact of gross margin very much goes to EBITDA because our capacity costs do not scale at the same rate as our revenue or ebitda but to understand a little bit better why this increased profitability is shown in this first nine months to the extent that it is i will just take you through the three segment the development in the three segment so we have as hendrick mentioned enterprise pro audio and healthcare and pro audio and healthcare are the two segments with the highest margin enterprise is our biggest segment where we have the largest share of revenue where we've got solid long-term partnerships but it's also a segment where the growth in the market is lower than the two others therefore when we see a different distribution as we had in the first nine months compared to last year where pro audio on healthcare takes up a much bigger share we see that reflected in the gross margin for the whole company ProAudio, we a year ago, or a couple of years ago, decided that we wanted to focus on module business, standardized products, economy of scale, and that seems to pay out, as we see here in the growth. And healthcare growth is one of our strategic investment areas where we have also seen a significant growth in the revenue. if we this leads us then to the to the outlook where we this morning increased our outlook for the year and we increased mainly on the profitability markers EBITDA and EBIT but also a little on revenue the reason for this is that we have basically now we have a solid 10 and a half months once and a half to go in the quarter and we feel that we are relatively sure that the profitability that we can predict is is there the reason that the you can say the interval is still relatively large is the component situation where delivery lead times of components is a big challenge that we are that we are facing but increase of profitability from on EBITDA from 35 to 65 up to 50 to 75 and on ebit from 0 to 30 up to 20 to 45 and with that that kind of supports our long-term ambition so will you say a few words about that yeah of course thank you emilia so so all in all i think the first nine months is is definitely pointing in in the right direction

even though q3 have been been impacted by limitations in component supplies we are seeing a strong market trends uh in the in the segments that we also pointed out in our growth ambition that that really should drive our future growth so both the the health care but also the the turnaround on the pro audio business and also as part of the the enterprise business our retail these push-to-talk headsets are really uh you know showing a positive drive and we see a positive market pull of these and of course happy to see also that we are that we are able to turn this into both goals on top line but very much seen from the first nine months on the EBITDA and EBIT which I think is so important because that allows us to reinvest into the business harvesting more of the future growth opportunities so yeah thank you Milan Henrik wow what numbers you got here and an upgrade henrik what are you most pleased with in the q3 results well i think of course the underlying market pool i think is is the most uh really affirmative uh trends that we're seeing beneath our strategy and our growth ambitions of course we we are challenged by the component situation the limitation of components but i think that also shows some of our strength that we are able to even in difficult circumstances both to increase our earnings because it's it's not only on on delivery capabilities also pushing pricing on on components and that our team that are really working extremely hard in managing this both with our customers but also with our suppliers in managing this different situation and still shown a nine-month growth trajectory I think that that I think is what I'm most pleased with.

But you could have sold more.

Yeah, yeah. If we had unlimited capacity and unlimited component supply, yes, we could have sold more. We are managing that and trying to manage that also going forward in dialogue, close dialogue with our customers so we can align deliverance to customers over time.

And how much more could you have sold in the third quarter?

Well, I cannot give you detailed numbers, but it would have, of course, delivered a better result than we're seeing on top line. But we are working really to be able to deliver that over the next quarters.

And you're saying you're working on it for the next quarters, but will this problem continue the coming year?

Yeah, I think that is a reality. so the you know the the root cause behind all of this or there are more but the main root cause is really the push for data centers which is driven by the ai pool and that really pushes the electronic supply chain to its outmost so it pushes the ices the memory and now even the pcb so that's the printed circuit boards uh and uh you know building data centers they pay huge amount of money so the margins on that is higher and that is that is that is challenging us and we are foreseeing that going into 27 as well um so how are you working with this so i think it's a dual there are three main elements that we're working one is of course staying very close to our customers because my our customers they are also major electronic suppliers and even producers so so so being in close dialogue with them and also to manage the the the supply and and making sure that we can still support their business is is extremely important uh having longer forecast because longer forecast visibility makes our supply chain able to manage the situation much better and that's the second part is really the close collaboration with our supplies the the electronic manufacturers and the sourcing uh being being yeah very close but if i'm an investor that that's actually a good thing because then you know what's going to happen in in 18 months yeah yeah exactly of course it is you know how much you can get and the price yeah i guess yeah well the price is actually a challenge because when you when buy in this situation you get into something called allocation right so so you put an order in and that puts you in a position to most likely you will get it but there are uncertainties because the situation changes basically on a day-to-day basis but i think that is also actually pointing to the strengths of rtx because we are working with some of the major manufacturers of the world and our customers are some of the biggest companies in the world and they kind of loan us their leverage so we can navigate in this and also

the flexibility in our asset light setup is i think even though it is a challenge it is proving a strong part for rtx and then milik just took us through the numbers if we look at ebit you delivered around a nine million in the first nine months and why your full year upgraded guidance is now it's 20 to 45 million so that means that you need a very strong q4 million maybe you want to answer that what makes you confident that business can deliver those numbers with the q4 we need a revenue of 170 to 200 that is something that we've done before as Henrik mentioned we've got a

spillover or postponed orders from q3 so on on top line we actually feel even though the uncertainty is really high we feel this is a confident uh we're confident about the the top level then we have a structural issue that on the last quarter summer holiday means that the capacity cost for staff is lower than the rest of the year so we also feel quite confident on our on our capacity costs and as mentioned before the the split between the three segments also supports the the gross margin even though the share of enterprise is expected to be significantly higher here in the last quarter yeah and then then i think it's actually also i think what we are

looking at is is seeing the effect of our business model in itself because you know with the asset line setup we have we can scale the um the you know the revenue without scaling the capacity costs so so compared to last year where i think we did 141 we're looking into a significantly improvement in that that's what we are guiding uh so so delivering that will actually also you know the the last the the top up uh revenue compared to last year a large portion of that will actually trickle down to the bottom line that's also why we see and clearly expect a good impact of the additional revenue in q4 and i know you've been working with scaling up it are you now reaching the point where you will earn more and more uh the more you sell earn more per one crown or one dollar or whatever of course you can say that but of course we're also investing into the business and you can also look at the numbers that that that we are significantly investing in the business because it's you know growth doesn't come for free so we have to invest in building up customers, building up markets, building up capacity and capabilities as, for example, we've done over the last year in healthcare and we are seeing that kicking in and, of course, we also have the expectation for that to continue.

Yeah, you have more than doubled your investments in development from 31 million Danish kroner to 72. What are you investing in, Mille?

We are investing in healthcare. as a couple of years ago we we made a contract with one of our key customers and healthcare taking over the responsibility the full responsibility for the products and that came with also taking over the development of of the product so that we have the full ownership and that is mainly that's the the biggest part of the the change the other is that we are investing in a next generation platform for enterprise which enables us to both have a more secure more future-proofed and more efficient platform and for those of those who are listening who doesn't know what next generation platform enterprise means can you tell us what it is well I'm a finance person so I'll try to do it from my point of view maybe Henry can help us just so everybody you understand what is that basically what i what i understand is that if you develop software individually and hardware for in each individual customer and don't reuse anything you spend a lot of time and money if you create one platform and small add-ons or small apps like we know then you can still have a customized product but not at the same cost and at a higher security so it's easier to maintain so you can you can produce more for less is that if you should

well we can actually support more customers on on the same platform and then of course i think as many of the the you know the the attendees also know you know the requirements for cyber security requirements to to keep up to make sure that we still keep our technology edge in in an enterprise business that we've been into for more than two decades so of course we need to to make sure that we still support and and secure that business so we're able to grow with existing customers and also bringing on new customers while being you know being prepared for for the context that we live in where cyber security is a part of a daily daily life right and back to the investments uh that we were talking about from 31 to 72 million uh when do we seriously when do you seriously expect those investments to turn into growth but i think we are seeing aspects of it you see the growth rates of 50 year-over-year from from healthcare that is definitely one of the areas where we expect over the next two three years to really to see that that payback we see the the platform approach that we we introduced in in in poor audio where we really have a scalable business and we see that trajectory going off um and then we also seeing in in the retail segment

where we also with one of our major customers have have really done a close development partnership and and bringing that to market is really driving growth so i think we'll see you know some of the investments are longer term i think most investments we'll see kicking in over the next two to three years and mille we're talking about how you're becoming more profitable and you're making more money on what you sell that's actually the baseline for this quarter the gross margin has increased from a 50.7 to 54.8 can you just you know can you tell us more about this improvement and will it continue in the

coming years I think that what I can say is that the what we expect in the coming years is that the share of enterprise of the total revenue is gonna decrease because both pro audio and healthcare is gonna grow more than enterprise and since they are the two segments with the higher margin that is we're expecting that to drive also growth in gross margin to a certain limit of course okay so so if we look at the elephant in the room that's enterprise it's going the wrong way how is the future looking for enterprise but and that is a headphones and when you're in Ljuska Lidl for example but but but I

think yes even though at in the first the Q3 and and where enterprises today yes it it's we call it it yellow but we still see a strong green future coming back even in q4 and we see as i think as mila also say we do we we have a strong belief that enterprise is a growth market maybe not double digit but but but single digit growth and because we have the position that we have where we clearly are the technology leader we also have the opportunity to find those growth segments or niches as we've done in retail so we do believe

that we're able to to also grow and on also profitably uh the the enterprise business and for you who is watching we can see the questions are coming in please keep them coming uh it's now is the time to ask milan henrik a lot of questions uh just one question um we're happy to to answer them here uh this back to enterprise are you seeing uh signs that enterprise could return into growth to be a growing business but but yes yes clearly so so so enterprise as whole I think it is going to be a growing business if the core will be

steadily growing but seeing that we are exposed in with these you know customers like HP Cisco that are that are globally that has brought the solution portfolio we are we have the ability to seek those uh growth sub verticals and i think the best example of that is actually the retail headset which is a is part of enterprise it's based on the enterprise platform that we're using we just made it dedicated for for for the specific use in in retail stores and we'll see more of those uh so i do believe combined so there will be sub-segments that might go a bit down but we'll see we will have opportunity to grow other sub segments as we've done historically and i know you're one of the largest in europe actually making those business to business for uh for stores yeah for retail for retail do you want to be the biggest in the world yeah for sure yeah but i i think we have the the right technology and if you look into that market there really is a technology trend so in many countries across Europe, across U.S., if you go in, they have like walkie-talkie or call buttons in there, and that really is not fit for the future retail store, which is much more an omnichannel, so where you actually both have the, you know, the online warehouse, but also the physical store where you can go in and get good customer service, and that actually requires a different type of teamwork between the employees in stores, and they need to have their hand free, being able to move around having crystal clear voice and being able to integrate the voice into their back-end systems so there's a technology transformation going on in that and that's what you know our technology is actually leading um so yeah so so so clearly and i think with our key partners we are in the right position really to to grab that position as the leading provider there and then we have growth engines uh henrik healthcare is growing by 51 and pro auto by 42 uh are we beginning to see a more fundamental shift in where rtx growth and earnings will come from those two segments of three in the future yeah yeah i think so and that's also if if you look at our annual report that's actually our strategy it's really to secure the strong foundation base in in our enterprise business. But building a really scalable business model in Pro Audio, which I've seen, we've seen the strong signs that we are delivering on that. And then healthcare as the, both the leading in profitability growth, but also in top line growth. And I think we are seeing good signs of that and we are delivering on that. There's a lot of stones that has to be crossed and jumped over before, you know claiming success but i think we are seeing good signs on it and and i also think but it for sure it will also require more investment over time that we invest in the right products in the right markets if you should choose a healthcare approach which one would you go with you could only have one of those yeah yeah but then you shouldn't work at rtx because rtx no but really but rtx is really about you know we have strong technology we know how to build secure, reliable wireless communications, and that is needed in many segments. So I think when you buy into RTX, you also buy into that we are very focused in a number of segments where we believe we can be the winner. And that we can, you know, I think we are the winner in enterprise. I'm sure we can be in healthcare infrastructure for patient monitoring and also in ProAudio, where we can, you know, focus on the critical communication part. So I think that is actually the strategy. It is, you know, that we have more than one growth bet and more than one growth record. And I think that, you know, hopefully also provides some solidity or robustness into our growth strategy.

Healthcare, if we look at that one, we've been talking a lot about that in your annual report and the reports before.

Healthcare, you're moving into the U.S. and it's the the communication monitoring patients at the hospitals when are you in the hospitals and when are you earning money in healthcare so when is it growing when is it a big part of rtx so so i think it is uh so i i would say it is becoming a big part so we are So with our customers, so on the, you know, in the segment for monitoring critical cardiac patients, we have a close to a 50 percent market share with our customers in that segment. That segment in itself is growing. And we see with our investments in we have a USB access point that we are launching next year. we are doing trials this year is what's going to extend that and really extend that market so I think we are present in the US and we're going to grow that market there's also a European market so I think over time for me it's about building a broader portfolio and I think we are on the way on that Can I ask you when? It takes time the investors has to be patient I would say actually today if you look at our organization healthcare is a big part of RTX Because we've really built competences on that. If you look at revenue, it's moving close to 20% of our revenue, right? So I think it is becoming, so I think really within the next two to three years, we will see that healthcare is, and I do actually believe it is today, a big part of RTX and who we are becoming.

And then we have Pro Audio. That's a little bit blurry for some of the investors and the people reading about AirTakes. I remember something about the football fields, the sound, concerts, defense. It's a big, broad, blurry thing for some people. What are your plans for Pro Audio?

So I think for ProAuto, it's a clear plan. And that's what we have been implementing. It is to deliver standardized chips or modules that allows, that fits many markets. And we allow our customers to address those models, whether it's solutions for football, or if it's Formula One pit crew communication, or if it is tactical teams in deployment. So I think that is actually the strength, because you're right, it is a lot of different markets. There, I think the smart thing about our business model is that we've actually focused it on the same standardized product, because that allows us really to scale it without huge investments. So that is really what we've done. And you also see, I think, the impact of that really kicking in into the ProAudio business that has a strong growth and also a strong growth in the future.

And how big will ProAudio be? A big part of RTX will that be, Mille, when you look forward? what?

Let's see. I think what we see is that healthcare, as Henrik is saying, is our main growth segment. We see verticals, sub-verticals, where we see potential. And not all of them are going to spin out, but some of them are going to spin out. I think we will see highest growth in healthcare, second growth in Pro Audio, and then as enterprise, as a pool, the the lowest growth but still growth.

And what could be the biggest obstacle looking the coming years Mille for RTX?

As a whole I think to actually continue to succeed on the growth in healthcare actually establishing establishing ourselves in in the healthcare market together with our customer and other customers and I think it is combined with that really driving the usability of our technology like we have done in retail so so using our technology to make a change translating technology if you will to problem-solving there I think we've got a really huge potential but also it was the obstacle I asked you about the biggest obstacle the coming years the biggest obstacle I think it's the market how how do we actually understand and address the market how do we move closer to our customers to our use cases I think our Texas has a really really strong technology base and we are we want to become even better at understanding customer needs acting on customer needs prioritizing based on on market needs and what are you thinking about uh lying at home at night thinking about rtx i know you you you're trying to look ahead and you came with a strategy in december what could change that plan i don't know what what can actually change that

plan because i i think i think that that is actually the most important for for rtx is actually to have a clear direction and to be determined in the verticals and the markets and positions that we want to be in healthcare in enterprise and the sub-segment of retail in quality with the critical communication because you know wireless communication can be used anywhere and we can solve a lot of problems so i think getting that direction and determination really to grab that to get as mila say closer to our customers and really owning the the solutions to specific problems and and the determination that actually takes and it's it's not an easy journey but i think it very much it lies in our own hands in terms of you know we have a strong team and we are building that team but having that clear direction and the ability to execute on it i think that is you know and then it lies on on us uh to do so and i think that's the hardest thing to execute yeah i i do think to be honest i think it's easier to make a strategy it's harder to make the strategy real reality you know strategy is a powerpoint right uh and a market survey and stuff like that but getting it executed and turning it into action that you can actually see both in financial results but also you know in in in milestones in customer wins getting it transformed into and getting the full organization aligned behind that i think that is clearly the hardest

part and back to the the numbers bill EBITDA has increased by 35 you showed us before to 30.1 million even as you are investing as we talked about before what does this number tell us about the underlying profitability of rtx uh the growth or the actual ebitda the growth that's the increase meant by 35 uh i think that the that the increase on 35 when we you can say only have 30 million uh of of ibida the percentage probably doesn't say that much because 35 of uh of 30 is

not so significant but i think what it does say is that when we reach a revenue of around 600 that's when we start really being profitable and being able to invest in our future so and as we surpass that then we have even more to invest in in future growth and when do you reach the 600 million who knows maybe this year it's within our guidance within the guidance yeah so uh so then you will turn into a a profitable engine super engine that's our that's our firm belief and hope yes all right uh let's talk about this year by a back program uh you increase it from 20 to 40 why uh we have a capital policy which says that we should have 80 to 100 million in cash and And the reason for that is that we need both because we've got big customers, they look at our solidity and liquidity ratios. And because there are changes in the market, like the component situation where we need to be easily flexible and have capital ready. You probably also saw that we had 135 million at the end of the quarter, which is more than that. And that's basically why we are initiating our exchange.

Is it hard to balance giving capital back to shareholders and investing?

You can say this is basically a broad priority to say when are we investing. But as long as we have a capital policy, and that's the idea of having a capital policy, that it's transparent for investors, what do we do with our excess cash?

All right.

The decline in the component shortages, how long do you both, that was the headlines of today's news about RCX, when do you think they will finish? well nobody i don't have a crystal ball but i think the the science and transit we're looking for it it's going to be part of 2027 uh at least uh so so it it i think it is going to be part of what you can say normal business in in 27 to manage that to manage longer lead times both to customers and and to uh to to suppliers um so i it is definitely something that we are that we of course already have taken into the queue to the end of year uh guidance and it's also that you know we are looking into uh going forward into next year how to navigate that and i think you know even though it is a challenge and we'd rather have it without i think we are in a good position to to manage it anyway okay let's look at the some of the questions that came in here uh there is one have any orders that we were expected in a 2526 slipped into next year the coming financial year due to the component shortages capacity limitations well the short answer is is yes but it's of course something that we are in close dialogue with with our customers around because about because you know to me that's actually what matters most is that we're able to supply to our customers so they can service their customers uh and have a running business because i think that's how you drive business uh over time and i think we are seeing a good uh good dialogues and good understanding of that so i think again we are about to manage but yes there are orders slipping in and for another question for customers does this change anything about a lead times component availability or delivery commitments well i think again that's part of the conversation that we do have with our customers and i think uh you can you can say we've gone from a few months of of delivery uh lead times to for some components uh to uh 12 months

even longer so it it definitely has changed significantly and it's it's it's not all components it's specifically three categories i mentioned earlier uh that that are challenging uh that has significantly longer lead times and that's gone from a few months to uh close to a year and really if investors should take away just one number or one financial development from this quarter q3 what should it be well you should never just take one number for a growth company you should look at the revenue and you should look at the profitability and what we are trying to do is to increase our revenue and at the same time increase our profitability and that is because we want to take advantage of the knowledge that we have and the technology we have and

convert it into into revenue and profit and henrik if we are sitting here again a year from now what needs to have happened in rtx for you to be pleased well i think it's very much and back to the strategy execution it's actually continuing on the momentum and the traction that we we do have getting our investments that we've been building over over the last year or so getting that to market starting to getting customer interaction servicing customers on that of course driving business on it so it's it's continuing the growth trajectory in in healthcare it's it's really seeing the positive trend in in pro audio continuing that with with strong profitability it's it's the sub segment of of retail with the push-to-talk headsets really to see that continuing to grow and again capturing that market and really seeing a solid steady growing healthcare business coming back as controlled based on us controlling the component situation so i think it's about really you know keeping the momentum because i think what we're doing today and the the signs that we're seeing in the first nine months is really where we want to go so keeping that trajectory i think is the most important and do you feel uh some pressure from the investors because i know that the stock slipped before you started you know we were at the bottom in december 24 you started in march 25 since that it has gone on um to be honest i won't call it i i think uh i wouldn't call it pressure because of course there's pressure but i think you know i think the dialogues i have with investors are actually more in the terms because we have a you know we have a shared target we want to see rtx grow if rtx grows and we are profitable well i'm quite sure that over time stock prices will rise and we will all be happy so i think we have a joint goal and so i think the conversation is actually more helpful and giving you know specific input on on how to to do and then we might have a different sense of you know patience on when to deliver results and you know it's it's my and milo's business to drive this business you know on not only on quarter to quarter but on the long term because that's what here for long-term value creation um so i think it really is constructive uh dialogues that that we're having with with investors that has you know a shared interest in making rtx as great as possible thank you both of you henrik mark monsen and mille tram lux and thank you all for joining us today a recorded version of a of this webcast will be on the website soon and you will also get a link and thank you for all the questions we got so thank you and goodbye thank you bye