Earnings call transcript: I-Tech Q2 2025 results show 26% sales decline

I-Tech’s Q2 2025 earnings call revealed a significant decline in net sales by 26% compared to the previous quarter, yet the company maintained a strong gross margin of 59%. The stock price reacted negatively, dropping 28.1% pre-market following the announcement. Despite the sales decline, the company reported a 21% EBITDA margin and highlighted promising developments in product innovation and market expansion. According to InvestingPro data, I-Tech maintains excellent financial health with an overall score of 3.79, supported by strong profitability and growth metrics. The company’s impressive year-to-date return of 103.61% reflects robust market performance despite recent volatility.

Key Takeaways

• Net sales fell by 26% quarter-over-quarter.
• Gross margin improved to 59%.
• Stock price decreased by 28.1% pre-market.
• Major growth anticipated from new product launches in Korea.
• Cash balance increased by 20% compared to H1 2024.

Company Performance

I-Tech’s performance in Q2 2025 was marked by a notable decrease in net sales, which fell by 26% compared to the previous quarter. However, the company managed to increase its gross margin to 59%, demonstrating efficient cost management. The company’s focus on innovation, particularly in antifouling coatings for ships, positions it for potential future growth. Additionally, the cash balance saw a 20% increase from the first half of 2024, indicating strong liquidity.

Financial Highlights

• Revenue: Not specified in the call, but significant decline noted.
• Gross margin: 59% in Q2 2025.
• EBITDA margin: 21% for Q2 2025.
• Cash balance: Increased by 20% compared to H1 2024.

Market Reaction

I-Tech’s stock price fell by 28.1% in pre-market trading following the earnings announcement. The stock’s movement reflects investor concerns about the significant decline in sales, despite improvements in gross margin and cash balance. The stock is now trading closer to its 52-week low of $43, far from the 52-week high of $124.5.

Outlook & Guidance

Looking forward, I-Tech plans to launch new products in Korea by October and is working on additional registrations in the EU and US markets. The company expects continued positive business momentum and plans to maintain its dividend payments, currently yielding 1.51%. While no specific forward-looking statements were provided during the call, InvestingPro data shows analysts expect the company to remain profitable with a forecasted EPS of $0.52 for FY2025. The company’s revenue CAGR of 32% over the past five years demonstrates consistent growth potential.

Executive Commentary

CEO Markus Jansson emphasized the positive development of the underlying business, stating, "The underlying business is still developing positively." CFO Magnus Henell noted that the company is "starting to look at a more sustainable level," reflecting confidence in maintaining current margins. Jansson also highlighted the company’s efficiency in delivery, saying, "We have a very good response time and are able to deliver quite quickly to our customers."

Risks and Challenges

• Sales decline: A 26% drop in sales could impact long-term growth.
• Market saturation: Limited penetration in the global fleet market.
• Regulatory hurdles: Ongoing EU reregistration processes.
• Competitive pressure: Need to maintain edge in a crowded market.
• Supply chain issues: Potential disruptions could affect production.

Q&A

During the Q&A session, analysts inquired about the quarterly sales variations, which the company confirmed as normal. Questions regarding specific forward-looking statements were met with caution, as the company refrained from providing detailed projections. The sustainability of the gross margin was affirmed, though details on the technical development milestone remain undisclosed.

Full transcript - I-Tech (ITECH) Q2 2025:

Ludwig, Moderator/Host: Hello, and welcome to today’s broadcast with EyeTech, where CEO Markus Jansson and CFO Markus Henell will present a report for the 2025. After And with that said, I hand over the word to you, Markus.

Markus Jansson, CEO, iTech: Thank you very much, Ludwig, and good morning, everybody, to this Q2 presentation from Mendel. It’s me, Markus and my here by my side, and we’ll just, dive straight into the material. So, for any newcomers, to iTech, we will just have a brief introduction. So So iTech is a is a biotech company, with a unique technology targeting antifouling coatings for ships. We’re a knowledge based company, and our production is outsourced.

We estimate that we are on, today around 3,000 out of a global fleet of a hundred hundred and ten thousand commercial vessels. So plenty of help to or opportunity to grow going forward. We are addressing some of the key challenges for international shipping, which is the emission reduction of c o two, prevention of the transfer of invasive species. We’ll talk a little bit more about that. And also then, emission to water of chemical substances.

So our solution is well positioned to help shipping, companies and ship owners to address these challenges. The solution, stems out of Swedish biotechnology, and it is, let’s say, an a drastic improvement in terms of performance, both to prevent barnacles from settling on the ship and also the amount of chemicals that is needed to achieve the desired effect. We are in at six of the nine largest paint companies today and working actively with all our target customers. So during the q one presentation, we talked about, the market outlook a little bit. Sort of the start of the year with the turbulence around the global trade, etcetera, it it sort of called for a discussion of what can the implication be for Aitik going forward.

So we would say in in q two, of course, the the preconditions has continued to evolve. But looking more specifically at shipping then, I think it’s positive to see that the charter rates have maintained at a sort of a a fairly good level around $25,000 per day, which is sort of a indication that that at least that is stable. The demand is stable. If we look at the deliveries of new ships, new vessels, that is predicted to increase this year by about 9%, and that is well on the way as far as we see. The the worrying signal is the contracting of new vessels.

And the the turbulence we saw in the beginning of the year, we have seen so far a significantly lower contracting rate coming, of course, from a situation with very strong growth in 2024, but it has markedly slowed down in 2025. It’s not an issue here and now, but, of course, if this prevails, that could be a challenge for us in around three years from now. But let’s see how that evolves. So that was the quick introduction. Now I will hand over to Magnus then to take you through today’s results.

Thank you

Magnus Henell, CFO, iTech: for the introduction. That brings us into the quarter and the first half year of this year. And as you all have seen, I guess, in the report, we’re we’re coming in with a quite slow quarter. But, we would like to share this picture first to really emphasize that we are coming into a slow quarter from two exceptionally strong quarters where we where we saw a huge growth and very nice purchases from our customers. And we can see that both as we wrote in the in the report, there are some short term inventory buildup in in in our customers, which we foresee that it is really short term.

But also the the turbulence that have been in the market during the start of this year, that that has had some negative effect on on us. I I think it’s really we need to emphasize that the macro conditions for the shipping, they are still very positive. So when we look into the result of this quarter, I I think we also need to see the whole picture. But but let me take you through the quarter first. As you have all seen, we we we had a net sales with 26% lower than q two.

I know the expectations have been very much higher, of course, from our side as well. But we given the different events during the quarter, this is unfortunately the result. We have, course, also talked about this during the last five quarters since our previous, sort of, reduction over a quarter in q four twenty twenty three that it is a little bit stochastic still, the the business. So it can go up and down in the quarters. And as you’ve seen, it was two exceptionally good quarters in the beginning.

And it there will be variations. I need to emphasize that again. And, of course, the the exchange rate hasn’t hasn’t played in our favor, of course. We we have lost roughly 13% only on on on the exchange rate. So what is positive in the quarter, though, is that we are still increasing our gross margin.

It continues. And and this increase in the gross margin is a combination of new supplier, some process improvements, and of course, also pressure press price pressure on on existing suppliers, so to speak. And coming out of the quarter, we’re we’re ending at 21% EBITDA margin, which is good, but but bad for us. But I think also positive is the strong cash balance that we are still growing even that we have a dividend during the quarter with 34% compared to last year. But as I said, I I think we we need to look on the full picture, and and and and the first half year gives a little bit more flavor of where we are, where we combine the first two quarters.

And here we show double digit volume growth. The exchange rate makes that just or almost double digit net sales growth. But we’re coming out with a very good EBITDA margin of 30%, which is where where we should be in in in our view, so to speak, and the operating cash flow is also good. So taking into account, of course, q two is a bad quarter, but we also need to look on on the full picture of the first half year and the trends moving forward. And just to to to round up the the financial part, so to speak, we’re we’re we’re having a situation.

We’re still it’s very much Asia. We have 99% RSAs in Asia. But what has happened over the the quarter into this first half year is that that Korea has taken over a little bit more again, with a little bit drop of of the portion of the sales in China. So that maybe don’t doesn’t say anything for for the long term, but I I think what we also need to emphasize again is that all the customers we have, the the smaller customers, below the number one or number two are growing significantly. Although all back from from a low level, but they are continuing to grow.

Markus Jansson, CEO, iTech: Okay. So just wrapping up, then I think it’s important, as Magnus is saying, to to look also at the development of the full year. And and just want to emphasize what Magnus is saying. The the number one reason for the results in q two is the natural variation. There was really strong sales in q four and q one.

One customer then reporting high inventory, you could say, in the also. Right? The market turbulence in the beginning, or end of q one, beginning of q two, could have had an effect, you could say, on on purchasing behavior and risk mitigation, etcetera. But as Magnus is saying, I mean, growth, first half is still good, especially if you look in volume or nominal, currency there. So, if we look at the split from CMP and the other customer base, you could see that that CMP has grown again their share a little bit in the first half.

So twenty eight percent of the sales comes from the broadening customer base. But, this base has grown their volume by 41% in the first half of of the year, which is sort of also underlying then the additional growth potential going forward because many of these customers are coming from quite low levels, and we have seen positive developments. We’ve talked in in a number of quarters about PPG. I think their growth in the first half was 172%, but there are also now more customers that start to to display higher growth rates, among the the smaller ones, which is speaking well for sort of the underlying strength, of of the business as such and the future growth, prospects, I would say. And also, cash balance, yeah, it it grew 20%, versus h one to 20 24.

So prior, they’re underscoring sort of the positive momentum in the business. And Magnus was mentioning the the the gross margin as well, right, which is another good thing. It has developed, you know, even a little bit better than anticipated so far this year. So very good developments there. So let’s look at the outlook a little bit then as well, but going forward.

And and here, we actually start with the regulatory situation and the reregistration process in EU, which is this theme that, you know, we keep coming back to. What was a significant event during q two was the extension of SelectRope’s existing approval for a year then to accommodate that this process that we’re going through now can be finalized. So essentially, the the old approval was set to expire in the June, but they have now given it an additional year. During the summer and in July, I actually participated in the first implementation dialogue regarding the biocide product regulation. So this big regulatory package in the EU, which was a very good event.

It was hosted by the commissioner, Varahe, and his cabinets and also included members from other other commissioners and also ECA. So it was a good opportunity for industry and other stakeholders to to sort of highlight the challenges and the opportunities to develop this legislation going forward. Another very important meeting happened just after that when when I and the ITEC team got a chance to meet, the commissioner’s cabinet. And in this meeting, we had the opportunity to point out some of the factual errors, that has been apparent, you could say, in the ongoing reregistration process of Seletope. So, we, of course, anticipate and look forward to see how this meeting can influence the process positively going forward.

The first occasion where we can see an indication of the results would be at the next standing committee meeting, which would be in September. The meeting after that is in December then. We still hope that we will be able to say where this process of reregistration will end towards the end of the year, but as we have flagged numerous times, it’s very difficult to see. Now at least we know there is a deadline for the mid of next year with the prolongation of the current approvals. So that’s the status here.

I would say quite good developments over the summer, which is we released a new white paper about fouling in niche areas of ships. I think now we count towards the end of the summer. I think many of you have maybe seen use of exotic species turning up in our coastal waters around Europe. At least here in Sweden, there has been some, very noteworthy, spotting of of new marine species. And this is, of course, threatening the biodiversity of our European coastal waters.

And the number one source for spread of invasive species is actually the fouling of ship’s hulls. And we we talk a lot about sort of the big areas of the hull because that is implications for the fuel consumption. But actually, you have very much problem in these so called niche areas, which are very difficult on one hand to service and maintain, but also very, very difficult to clean during the dry docking cycle. And here, actually, then you have the possibility for invasive species to thrive. And that could be, you know, in sea chests and sea chest gratings, in in crossover tunnels, blow thrusters.

So it is really to to highlight and put an emphasis for the industry to develop better solutions here to help preventing the spread of invasive species. And here, of course, our solution, Cellectope, has the opportunity to to to give much better protection versus barnacles. And barnacles is really, you could say, a host organism for other invasive species. So tackling that would have a big implication. So coming to the business outlook then.

Well, the uncertainty in market turbulence is to some extent continuing, you could say. I mean, there is there is new updates regarding trade tariffs, etcetera, going forward. However, we’ve seen positively then that the the shipping business is stable, and and the new ship deliveries is set to increase for this year. So underlyingly, it’s still a quite good market. The currency headwind, we have suffered that in q two.

Now it has been stable during this quarter, but we will see then how the rest of the year develops. But as also we said then, I mean, we look forward, to more positive developments with customer product launches. During the quarter, we have got confirmation then of one customer intending to launch a new product, in Korea later this year, and we will also see, or anticipate then several new product launches, in the October, and let’s see more about that going forward. Also, the business development activities are developing really nicely. We had some good technical milestones achieved during the quarter.

And also then, last but not least, I mean, we will continuously work on the operational improvements and the And and, of course, specifically for the EU, but also for the rest of the world when it comes to achieving additional registrations, US market, for instance. So I think that concludes the presentation part, and we eagerly await and look forward to your questions.

Ludwig, Moderator/Host: Thank you so much for the presentation here. And let’s start with some questions here. You previously experienced a similar pattern in which sales growth was halted in Q4 twenty twenty three, which rebounded in q one twenty twenty four. Can we assume a similar pattern here?

Markus Jansson, CEO, iTech: Well, we stress every time that there is a substantial variation between quarters. Right? And we can say that the the result in q two is predominantly because of quarterly variation. So the the underlying business is positive and is developing positively. We see, you know, a good volume growth of of the larger and growing shares of of smaller customers.

So there is definitely more to be seen in the future.

Ludwig, Moderator/Host: Thank you. Do you think your gross margin of 59% in the quarter is a sustainable level going forward?

Magnus Henell, CFO, iTech: Yeah. If we work proactively with our suppliers and, of course, with making sure that we have good prices towards our customers also in the future, I think we should should look on it at a sustainable level. Of course, it can also vary a little bit depending on the customer mix because, of course, we have different prices, etcetera, different mix over which supplier we are delivering from moving forward. But I think we’re starting to look on a more sustainable level. Yes.

Ludwig, Moderator/Host: Thank you. When do you expect inventory levels to be more normalized?

Markus Jansson, CEO, iTech: Well, I think the inventory levels at our customers, I think we have we have, talked about that extensively also, is in general quite low. You know, a a paint manufacturer, they they are really taking pride in keeping low inventory levels. And and, you know, we have, as I take, we have a very good response time and and are able to deliver quite quickly to our customers. So in general, customers have very low inventory levels. And we made this comment specifically around one customer then in q one that was buying large amounts in q four last year.

That resulted in them having a high inventory in q one. But in general, I would say inventories levels are not high with our customers.

Ludwig, Moderator/Host: Thank you. What development in sales have you seen during the ’3?

Markus Jansson, CEO, iTech: Well, I we we do not give forward looking statements. Right? But I think we are saying with emphasis that the main result for the low results in Q2 is because of natural variation in quarters.

Ludwig, Moderator/Host: Thank you. Gross margin was very strong in the quarter. Should we expect a level around here going forward?

Magnus Henell, CFO, iTech: As I said in in the previous question, I I think, we are looking at a sustainable level of gross margin, for for the coming periods. Then, of course, it can go up and down a little bit, but shouldn’t be any major deviations.

Ludwig, Moderator/Host: Thank you. Given you see the current sales environment as a temporary, the cost for adding workforce are behind behind now given the drop in share price. Would it make sense to buy back some shares?

Magnus Henell, CFO, iTech: Unfortunately, we don’t have a we have a situation where we can’t buy back shares, so so that is not an option we can elaborate on.

Ludwig, Moderator/Host: Thank you. What percent of 2024 sales came from the customer with financial difficulties?

Markus Jansson, CEO, iTech: Yeah. We do not have a number of that, and we we cannot give that, unfortunately.

Ludwig, Moderator/Host: Thank you. Was the customer reporting high inventory your major customer CMP? No. No. Let’s check for some more questions here.

Should we expect 2025 and 2026 growth to continue at a historical rate despite the lower q two revenue?

Markus Jansson, CEO, iTech: Yeah. Unfortunately, we cannot give detailed forward looking statements. Right? But the underlying business is still developing positively, and sort of the market is not as rough and turbulent as we had anticipated. It could be this year.

So there is still positive momentum in the business.

Ludwig, Moderator/Host: Thank you. What is the new technical development milestone you have reached? Is this related to combination with silicon? How how material could this product be?

Markus Jansson, CEO, iTech: Yeah. Unfortunately, we cannot go into the details, but it is one of the organically developed project, so sort of coming out of our innovation team. And it has the potential actually to be a major contributor to future growth. So that’s why we are quite excited about this and and, of course, pressing on with this project as soon as we can.

Ludwig, Moderator/Host: Thank you. Given the significant decrease in net sales during Q2 together withholding on of operating profit and net profit, I would appreciate your view on disclosure obligations in such context. Could you kindly elaborate on the considerations behind not issuing a profit warning ahead of the report given that both top line and bottom line development shows such a clear deviation from last year?

Magnus Henell, CFO, iTech: Yes, of course. That is a good question. As we don’t have any sort of obligations to do it, we have a have a policy which we have had since since 2018 when we were listed on on Nasdaq First North that we don’t, issue any nor neither any positive warnings nor any negative warnings. Of course, if it would involve sort of situations where we we have things happening such as entering a new customer or losing a customer, of course, we will disclose that also during the quarter. But regarding the financials, we have a policy of not disclosing any financials between the reports.

Ludwig, Moderator/Host: Thank you. What accounted for the interest expense? Hasn’t all debt now been repaid?

Magnus Henell, CFO, iTech: Yes. All debt have been repaid, but that is interest expense or similar cost. This part we are looking at there is it’s exchange rate loss on on the US dollar account and the variations on the US dollar account.

Ludwig, Moderator/Host: Thank you. Moving on to the last question here. Do you plan to pay dividend again?

Markus Jansson, CEO, iTech: Yes. I mean, we have assumed the policy of dividend payments going forward, so that is definitely planned.

Ludwig, Moderator/Host: Thank you. That was all the questions we had. So thank you so much for presenting here today, and thank you all for tuning in. I wish you a pleasant weekend when it starts.

Markus Jansson, CEO, iTech: Yep. Thank you. Very much.

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