RTX Q3 REVENUE AND EARNINGS GROWTH – REVENUE OUTLOOK 19/20 ADJUSTED WHILE EARNINGS OUTLOOK NARROWED

Announcement                      
To Nasdaq Copenhagen A/S and the press

Nørresundby, Denmark, 24 August 2020
Announcement no. 34/2020

Interim report for Q3 and 9M 2019/20
(the period 01.10.2019 - 30.06.2020)

“We are satisfied by the performance in the third quarter of 2019/20. Revenue increased by 6.5% and EBITDA increased by 31% compared to last year and we continued the progress in the product development work for key framework agreements within our Enterprise, ProAudio and Healthcare segments. As mentioned in the interim report for our second quarter, given the unprecedented nature of the COVID-19 pandemic an uncertainty as to the impact on RTX’s financial year 2019/20 had to be acknowledged. In the short term, we can now see that the effects of COVID-19 countermeasures globally have led to some RTX customers reducing their firm orders towards the end of the financial year so that these orders are below the customers’ previous forecasts. Therefore, we are adjusting our revenue outlook for FY 19/20. However, we have not seen customers pulling out of development agreements and therefore we continue to see our business model as being fundamentally strong and supporting our growth aspirations. We are maintaining and narrowing our earnings outlook and I am pleased with the resilience of our business model so that we with prudent cost management still expect to end the year within our original earnings outlook despite COVID-19.”

Peter Røpke, CEO

HIGHLIGHTS Q3 2019/20 FOR THE RTX GROUP

• Net revenue increased by 6.5% to DKK 158.5 million in Q3 2019/20 (Q3 2018/19: DKK 148.9 million). The increase is caused by the effects, during the previous quarter (Q2), of the COVID-19 outbreak and countermeasures in China on RTX’s supply chain which postponed revenue from Q2 into Q3. Further, the revenue increase is driven by Enterprise Headsets and by the Healthcare segment.
  • Business Communications: Revenue increased 7.8% to DKK 110.3 million. The increase is partly caused by the COVID-19 outbreak and countermeasures in China which postponed some deliveries from RTX’s suppliers (providers of electronic manufacturing services) in China from Q2 to Q3 thereby also postponing some revenue from March (i.e. Q2) into this Q3. Moreover, the increase is partly driven by increased demand for Enterprise Headsets. Revenue from the Enterprise handsets and base stations in Q3 was impacted by quarter-on-quarter fluctuations during the ramp phase of a large framework agreement announced during 2017/18.
  • Design Services: Revenue increased by 3.5% to DKK 48.2 million driven by increased recurring revenues from product sales and royalty, partly offset by lower revenues from engineering services (hourly-based engineering). This is a result of the strategy to increasingly focus on generating recurring revenues instead of selling engineering services and the result of some engineering resources being redeployed to assist with executing development activities within Business Communications related to both new and existing framework agreements in order to reduce an increase in the overall cost base in light of the global uncertainty due to the COVID-19 pandemic. Within Design Service revenue especially increased within the Healthcare segment.

        FX corrected revenue development amounted to an increase of 4.7% as revenue compared to last year was positively impacted by the USD exchange rate level to a minor degree.

• Gross profit increased by 2.4% to DKK 85.9 million in Q3 2019/20 (Q3 2018/19: DKK 83.9 million). The gross margin decreased by 2.2%-points to 54.2% (Q3 2018/19: 56.4%) impacted by the revenue mix.
   
• Operating performance improved with EBITDA increasing by 31.1% to DKK 38.9 million in Q3 2019/20 (Q3 2018/19: DKK 29.7 million). EBIT increased by 24.2% to DKK 32.6 million in Q3 2019/20 (Q3 2018/19: DKK 26.2 million). EBITDA and EBIT are impacted by the growth in revenue and gross profit as well as the development in capacity costs which are impacted by increased costs related to ramp-up of activities and investments in capacity related to the major framework agreements announced over the last years, but counterbalanced by tight management of the cost base considering the global uncertainty stemming from the COVID-19 pandemic. The average number of FTEs reached 291 in Q3 2019/20 compared to 281 in Q3 2018/19. Also, EBITDA and EBIT are impacted by implementation of IFRS 16 regarding capitalization of leasing costs, which increases EBITDA (and to a minor degree EBIT).
   
• Cash flows from operating activities (CFFO) increased to DKK 48.2 million in Q3 2019/20 compared to DKK 34.5 million in Q3 2018/19 driven by developments in earnings and working capital fluctuations.

HIGHLIGHTS 9M (FIRST NINE MONTHS) 2019/20 FOR THE RTX GROUP

• Net revenue decreased by 0.9% to DKK 399.5 million in 9M 2019/20 (9m 2018/19: DKK 403.2 million) with revenue growth within Business Communications (Enterprise segment) being counterbalanced by a revenue decrease within Design Services due to lower revenues from engineering services compared to last year.
  • Business Communications: Revenue increased by 2.4% to DKK 278.0 million positively impacted by growth within Enterprise Headsets partially counterbalanced by quarter-on-quarter fluctuations during the ramp phase of a large framework agreement announced during 2017/18 within Enterprise handsets and base stations.
  • Design Services: Revenue decreased 7.9% to DKK 121.5 million. Recurring revenues from product sales and royalties increased in line with the strategy to increase resource scalability within Design Services. Conversely, revenues from engineering services (hourly-based engineering) decreased compared to last year as the development activities in the division focus increasingly on generating recurring revenues instead of executing pure engineering projects and as some engineering resources have been redeployed to assist with executing development activities within Business Communications related to both new and existing framework agreements in order to reduce an increase in the overall cost base in light of the global uncertainty due to the COVID-19 pandemic. Within Design Services the Healthcare segment has performed stronger than the ProAudio segment impacted by the COVID-19 pandemic.

        FX corrected revenue development in 9M 2019/20 amounted to a decrease of 3.1% as revenue compared to last year was positively impacted by the USD exchange rate level.

• Gross profit decreased by 0.6% to DKK 227.7 million in 9M 2019/20 (9M 2018/19: DKK 229.0 million). The gross margin was largely unchanged with a small increase by 0.2%-points to 57.0% (9M 2018/19: 56.8%).
   
• EBITDA increased by 13.1% to DKK 71.7 million (9M 2018/19: DKK 63.4 million). EBITDA is impacted by increased staff costs related to ramp-up of activities for the major framework agreements announced over the last year. Counterbalancing this is tight management of the cost base in light of the global uncertainty stemming from the COVID-19 pandemic. This includes lower discretionary spend and substituting additional headcount investments with internal redeployment of employees. Further, EBITDA is impacted by capitalized development costs where RTX has continued to fund development activities of e.g. wireless headset models and ProAudio product solutions. EBIT increased by 1.8% to DKK 54.6 million in 9M 2019/20 (9M 2018/19: DKK 53.6 million) impacted by increasing depreciation and amortization reflecting the investments in RTX product solutions over the last years. Also, EBITDA and EBIT are impacted by implementation of IFRS 16 regarding capitalization of leasing costs, which increases EBITDA (and to a minor degree EBIT).
   
• Cash flows from operating activities (CFFO) amounted to DKK 78.4 million in 9M 2019/20 compared to DKK 62.4 million in 9M 2018/19.

OUTLOOK FOR 2019/20

• The COVID-19 pandemic affects societies and industries globally in 2020. RTX’s key priorities in this situation remain the health and safety of our employees and societies at large, as well as protecting the commercial and financial health of our business. RTX remains fully operational and focus on assisting our customers as well as on the most important development activities.
   
• RTX Q3 was affected by COVID-19 in a number of ways. Deliveries that were postponed from Q2 into Q3 due to COVID-19 countermeasures in China affecting deliveries from Chinese suppliers in March had a positive effect on Q3. Since March, the manufacturing sites of our suppliers have been and remain fully operational. Further, Q3 was affected by high demand for products in the Healthcare segment (products used in intensive care monitoring systems) and for Enterprise Headsets (increased distance working). Conversely, products within the ProAudio segment being used for live events have seen decreased demand in Q3.
   
• RTX’s balance sheet and liquidity remain very strong with a significant net cash position.
   
• So far during the global COVID-19 pandemic, RTX has maintained our outlook for the year. However, as noted in the company announcement of the Q2 results (cf. company announcement 30/2020), given the unprecedented nature of the COVID-19 situation globally an uncertainty as to the potential impact from the COVID-19 on RTX’s FY 2019/20 had to be acknowledged. With increased visibility regarding the end of the financial year 2019/20, RTX adjusts and narrows its expectations regarding revenue while maintaining and narrowing expectations regarding earnings (EBITDA and EBIT) as detailed below.
   
• The adjusted and narrowed outlook for revenue is DKK 550-570 million for FY 2019/20. While certain RTX products (e.g. Enterprise Headsets) and segments (e.g. Healthcare) have benefitted from the COVID-19 situation, other segments will be impacted by the COVID-19 pandemic towards the end of the financial year. Within ProAudio and Enterprise products the effects of COVID-19 countermeasures globally have led to RTX customers reducing their firm orders towards the end of the financial year so that these orders are below the customers’ previous forecasts.
   
• The maintained, but narrowed, outlook for EBITDA is DKK 105-115 million and for EBIT DKK 80-90 million for FY 2019/20. Both these ranges are within the ranges in the original outlook. With careful management of the cost base e.g. regarding new headcount investments and various discretionary spend, RTX expects to be able to maintain a solid earnings level despite revenues being lower than originally expected. Among other things, RTX has redeployed employees internally to maintain full momentum on the development activities for the large framework agreements which hold significant longer-term growth potential for RTX thereby reducing the need for new headcount investments.
   
• The COVID-19 pandemic increases uncertainty related to the global flow of goods (sporadic lockdowns etc.). The outlook for 2019/20 assumes that no unforeseen events occur causing supply or logistics disruptions.

RTX A/S

PETER THOSTRUP                                           PETER RØPKE
Chairman                                                            CEO

Investor and analysts meeting
On Friday, 28 August 2020 at 9.00 am, RTX will hold a meeting for investors and analysts at Danske Bank, Holmens Kanal 12, København. At this meeting, the Company’s management will comment on the interim report for the third quarter of 2019/20. To register for the meeting, please e-mail [email protected].

Enquiries and further information:
CEO Peter Røpke, tel +45 96 32 23 00
CFO Morten Axel Petersen, tel +45 96 32 23 00
RTX’s homepage: www.rtx.dk

Attachment

• RTX CA No 34-2020 - 24.08.20 - Interim Report Q3 2019-20