NextVision Stabilized Systems, Ltd. (NXSN) Earnings Call Transcript

Good morning, everybody, and maybe good afternoon for those who are joining us from Israel. NextVision Investor Webinar for financial statement of the third quarter of 2026. With me here is Michael Grosman, CEO of NextVision; and Alex Lavi, the CFO of NextVision. My name is Chen Golan, I'm Co-Founder and Active Chairman of NextVision. First of all, I would like to thank you all for joining us -- taking the time with us. We will go through the presentation. I will try to highlight the things that I think that are important. And after that, we will leave some time for Q&A. The third quarter of 2026 is demonstrate growth all major metrics. We update for the second time the target of revenue in 2026 for $355 million, meaning a 111% growth from 2025. NextVision considers itself as an R&D company. We try to bring to the market every year in between 2 to 3 new products. And usually, those products will be a game changer in the market. Our customers are the Western system provider that buy NextVision solution. And we have more than 300 Western system solutions that bought and still buying NextVision stabilized video solution for aerial platform. We are working on the ability to assemble a high quantity of unit per month. We started 2026 with a capacity of 1,500 units. Right now, we are standing on a capacity of 4,000 units per month. And by the end of the year, we're going to get to a capacity of more than 5,000 units per month for this facility in Israel. Parallel to that, we are working on the ability to assemble outside of Israel, and we will talk about that later on. NextVision order backlog stands on $209.3 million. That's a growth of 69% from last year's third quarter. And even we have a little decrease from the second quarter. I will expand later on why we see that decrease and what is the reason for that. As I said before, we are looking about the localization, having the ability to assemble outside of Israel in our market, the military market, most of our customers will appreciate if they will have the option to buy from a local manufacture. And once we understand that, we started to work on that in Europe. And the next step by the beginning of 2027, we will start to do that in the United States. Sorry. Just to remind everybody, the NextVision claim to fame is the ratio between size and weight and performance. And when you compare apple-to-apple, you will find that NextVision solution will be cheaper than our competitor solution in a very high of real ability. The reason for that is because of the technology that NextVision is using. Here, you can see NextVision gimbals. And when we sell our solution to our customers, it will be by selling them the gimbal itself with some accessories that will help them to do the mechanical integration very fast in a low price. And the trip. It's a small computer that enable them to plug and play the system for their system and use some other capabilities like AI, detectors, gear location and some other options that we provide them. In 2026, we announced 3 new products: the Raptor 3X, the Stinger, and the TRIP7. Adding to the Stinger, you might saw in the previous slide, that we add another camera to our cameras, the Swift. It's the same camera like the Stinger, but it actually enable our customers to fly in a very high speeds once NextVision is seeing that there is a whole or a place in the market that doesn't provide the best solution. We bring new products that will serve this problem. And by bringing this thing and the Swift, we enable our customer to have the solution for the counter UAS market, meaning flying in a very high speed with aerodynamic and very strong engines with our camera and still having a very stabilized video solution for their systems. NextVision position itself in the market as the biggest and leading company in the market. We do that by 4 things. One, of course, is the technology. The second will be proven operational experience. And you -- I believe you know that in every conflict in the globe, you might find NextVision solution on the drones and UAVs being used by those forces. And I think that it will be right to say that more than 10,000 of units are actually being sell and used in the last few years. The third point will be production capability to meet the market requirements. I would say that NextVision today will be -- maybe the only company that can actually give a solution for the high demand that we see in the market. We don't see any other competitor that might approach those quantities. They are talking about small hundreds per month, and we are aiming to get to more than 5,000 units per month by the end of the year. Financial strength, of course, that help us to deal with a huge problem that we see all over, not only in NextVision market, all over in the supply chain. The only way to deal with that will be for those components that we might have more than 1 supplier to make sure that we have 2 to 5 suppliers and usually, they will be in a different geographics. And for those components that we do not have a second source, we will buy an inventory in between 6 to 12 months and the reason for that will be that if one of our suppliers will have a problem, and it can be on a daily basis that the supplier will call you and tell you that he delayed the supply in 3 months, then we still continue to deliver to our customers, solving their problems and make sure that our customers will not suffer from that. Regarding the market, we see -- we continue to see a huge demand in the market even after the Democrats won the last election, everybody asking us about the demand. We don't see any change right now. Everybody understands that the next war and it doesn't matter if it happened or not, there will be a massive huge of drone and new UAVs on the lower surface of Sky. So everybody is still buying the systems of drone and UAVs. We see in the U.S., the budget of autonomous system aiming to $55 billion. And in Europe, we are talking about getting the aerospace and defense budget from maybe 1% of the GDP to 5% of the GDP in 2032. Adding for that, the loan that the European released to the Ukraine of $90 billion helps to push the demand in Europe and we see that, and we will talk about it later. I will add for that 2 more areas that I think that are very interesting and relevant for NextVision. One, of course, is India. After the last conflict with Pakistan, we see change in the way they act and buy and they started to purchase NextVision Solution. And another area of late bloomers will say the Japanese, they didn't started yet to have a local production of drone and UAVs, but they actually doubled twice the aerospace in the first budget and I believe they will enter the market in the 2027. Regarding a global presence of Next Vision. So we see, again, Europe is leading, going up from 57% to 63%. And that's, again, because of the budgets and the loan that they get. U.S. going down a little to 22%. U.S. was the market that had the highest growth in the last quarters before this quarter. Still, we see a huge demand coming from there. And we think that we have a lot of work doing there and make sure that we will continue growing in the U.S. Israel 9.3% and all the other world areas going from 4% to 6%. We see the demand growing all over the globe. Here you can see some of NextVision customers in the U.S. Brinc, Anduril, and PDW; in Europe, Quantum system and SkyWatch; and in Israel, UVision, IAI, Elbit system and Aeronautics. Just to mention and to see the strongness of NextVision when we are talking about small gimbals, all the Israeli companies have their own gimbals factories inside their companies, but still, when they are buying small gimbals for drone and UAVs, they are buying NextVision Solution. In this slide, this slide speaks for itself. We see the growth all over from the revenue, gross profit, operational income and net income. Two things to mention. One is active customers, active customers are customers that actually put an order in 2026 and NextVision actually delivered them systems. We see a slight decrease of 4 companies, but we can call it, cleaning the small customers that actually do not buy. We see the growing of the vectors are continue growing and buying from NextVision. So we don't see any effective change in the active customers. Regarding the backlog, as I said before, we see a growth of 69% from the last year third quarter and slightly decreased from the second quarter of 2026, and there is an explanation for that. The explanation is that in 2026, we actually tripled the capacity of cameras that we deliver to our customers, meaning from the beginning of 2026, we were in 1,500 and now we are over 4,000 units per month, meaning delivering a lot of cameras from NextVision outside. The time line that we usually get, and you can look for that in the last few years, the big orders of 2027 starts in November, December and going up to January. So that's the reason why we see the decrease in the inventory of the third quarter of 2026. We believe, and as you know, we speak with our customers, we talk with them about the future orders, and we see where they are aiming, we believe that 2027 will be a very strong year, and we believe that we will start seeing those orders coming in the next few weeks. Here, you can see the growth of NextVision in the last few years. I will mention only the difference that we've seen between 2025 and 2026, that's what was the change in between Phase 1 and Phase 2. Phase 1, everybody was buying what they thought they need to use. And Phase 2 is where we start buying to build their arsenals. And building arsenals takes a lot of budgets and time. So I believe that we will continue to see the growth in the market for at least a few years. As [indiscernible] said before, I believe that 2027 will be a very strong year, a high 2 digits growth that we expect to see. So we talked about the -- building the operational foundation for the continue of the growth. We are in this building, in this facility, we have already 3 floors. We just started to take another half floor and going from 5,000 square meters to 5,500 square meters. We talked about the increase in production capacity going by the end of the year to be at more than 500 units per month. Speaking about the inventory growth from $54 million to $92 million. That enabled us to deal in a proper way with the problems that we see in the supply chain. And expansion of international presence, we talked about building our assembly lines outside of Israel. First, it will be in Europe and then in the United States. Alex?

Thanks, Chen. Now let's go over a bit of our financial highlights for the period of 9 months that ended at September 30, 2026. So we are looking at $262 million of revenue, which is an increase of 117% in comparison to the 9 months ended 30th of September 2025. Our margin, our gross profit margin is around 66.3%. Our operating profit sums up to $156 million, which is an increase of 112%. Now it's important to mention our operating cash flow that it's all increased 4x in comparison to the period of the previous 9 months. Also, I would like to mention that our R&D expense, as you can see, is around $5 million. But we are in our accounting policy, we are capitalizing part of our R&D expenses. And as Chen mentioned, we are in an important stage of developing new products. So we have more capitalized expenses during this period. Our gross R&D expenses are around $8 million. Now if you can -- if you want to take a look at the other slide, so we present here the 3 quarters of 2026, one next to another. And here, you can see that, first of all, our revenues went up to $106 million. It's the first time we went above $100 million mark. Our gross profit is actually increased to 66.7%, which is still within the expected range that we published. We can see that there is an improvement from the Q2, which was 65% to almost 67% during this period. This is mostly because of the product and customer mix. There were some changes during this quarter. We can see -- we also talked about the inventory replenishment that we always look to purchase more inventory in good prices to keep up with the inventory prices within these times. And it's also important to mention that our productivity has increased significantly during the third quarter. As in the second quarter, we have a lot of new employees. And we see in Q3, the productivity went up dramatically as those new employees worked, productivity went up for those new hires. Now regarding our operating profit, we can see that every quarter during 2026 is improved from 1 quarter to another. And currently, it's at around 68%. Now this is very important for us. This is a strategic view of us. We are always examining the operating profit as it has to match our destination. Now the expense structure, we are a lean company. So we know how to manage our expenses. And it's also important to mention the economic of scale that we're enjoying it during this time. Now regarding the net profit, it's a little bit decreased from the second quarter. This is mainly due to the tax expenses that we wrote down in Q3. This is important to understand that there is a certain gap between the financial statements, which is marked in USD, but the tax expenses themselves are calculated in the ILS, the Israeli shekel. And this is affecting every quarter. It has some effect. If the exchange rate went up or went down, this is -- can increase our exchange rate -- exchange expenses -- expenses, and it might affect the taxes. So for this quarter, we can see an increase, but it's also very dependent on the exchange rate at the end of each quarter. And that leads us to $53 million of operating cash flow for this period.

Thank you, Alex. So what are the key drivers for the long-term growth that NextVision sees and anticipates? We are actively pursuing a strategic acquisition in order to increase the pace in which we are growing. We look for external growth while continuing our internal growth. We heavily invest in AI capabilities, which both serves to increase the competiveness of our customers when they are using NextVision products and also increase the stickiness of the customers to Next Vision products. We are actively expanding our manufacturing capabilities. They were expanded in Israel, where we started the year with 1,500 units assembled per month. And by the end of this year, our goal is 5,000 units per month. But it goes way beyond that because we have already started using our facility in Europe to manufacture in Europe, and we do expect to see a growing manufacturing in the European facility for 2027. And we are going to initiate a manufacturing facility in the state during 2027. As an R&D company, which continuously delivers innovation to the market through its R&D, we are constantly increasing the investment in the R&D, hiring additional talented people and expand our offering and make it better over time. We actively expand the customer base and we heavily invest in our customers. And we do see, for example, that the concentration of customers is going down from quarter-to-quarter, where other customers are taking larger and larger share in the sales. Last but not least, reliability and availability. The ability to provide the product to the customer, which is bulletproof and address they need without downtime it's a key and paramount request in our business, and we constantly focus on that in order to increase the reliability and availability of the products.

We will turn now to Q&A, and I would refer to some of the questions that we are receiving. About the backlog, it's most important to note that the backlog refers to the orders, to the open orders that we have as of 9th of November, which means that it does not include all the orders and deliveries from beginning of the fourth quarter until till 9th of November. More, when you look at the dip and the down of the backlog compared to 3 months ago, then you find out that we have 2 topics in our market. The first, the fact that we have significantly increased the capacity of the production, enable us in Q3 to release a large number of orders to our customers and supply to them. On the other hand, when you see the historical details of NextVision, you see that when building the backlog for the next year, the key months are between November and January. And this is what we actually see. On 1 hand, a much faster delivery in Q3. On the other hand, expectations based on discussion with customers, and based on the history and the way our market behaves that between November and January, a large portion of orders are being received and logged into the system and add to the backlog. M&A activity, I guess. The next one -- the next topic is about acquisition. The management of NextVision is actively pursuing acquisition opportunities. This is the fourth month now that VP acquisition is actively working at NextVision and looking for various companies to be acquired and a full board. It is important to learn that NextVision will only acquire the right and fitting company to NextVision strategy. When you are doing this acquisition, statistics is against you. Because statistically, most acquisitions are not successful. And from this reason, we always stress. We will do the right approach to the best of our ability and we would not go likely on acquisition just because we have a large amount of capabilities to finance acquisition. I do anticipate that in the coming time, we will see some results for the effort that we are putting into this process of acquisition. Yes. Another topic is about competition. NextVision success is phenomenal, and it's not 1 year, it's 6 years now. There are competitors in the market, and there will always be competition in the market. Nevertheless, when you look at NextVision portfolio of product you see that they are the best-of-class, while offering great pricing and value to our customers, because of that and because we constantly maintain their advantage and because the market is seeking these advantages, and would like to have them, we are able to both maintain our leadership, our prices, our margins. And this is very important to note. We are heavily manufacturing in running as fast as we can forward bringing additional capabilities to the market in order to fuel this industry and give it the right tools and the advances that it is looking for. And this is what NextVision is doing. Add to that the capability of NextVision to assure deliveries to its customers based on the large inventory that NextVision is holding and based on past performance and you can see why the big opportunities do go and select NextVision to proceed as we can supply and this cannot be taken lightly. When you look at how the supply chains do react and behave these days, you find out that inventory is paramount in order to go for this complex period of time where supply chain is quite erratic.