Investor Q&A

Feb 24, 2024 - Are you able to comment on the situation of the SDR radios of the Croatian army? A 2019 article states that Croatia is in the process of acquiring SDR radios. (Military Technology 9/2019)

Apparently, the acquisition would focus on Takrad's radios? They have said in 2021 that their radio would be one of the most advanced.

Have the vehicle and hand-held radios already been purchased or is the tender process still underway?

How do Bittium radios differ from Takrad radios, since Bittium has also commented that the radios are more advanced than others?

As a rule, such tenders are not public, which makes it impossible for us to comment on the matter and share more information with the public than is allowed. We are also very careful not to compare and publicize the detailed features of our products when it comes to military performance.

The basic information of Takradi and Bittium Tough SDR Handheld radio found in public datasheets notice that our radio's supported frequency range is wider and it also supports higher bandwidths than Takrad. In addition, it can be observed that the transmission power of the Takrad is lower than of the Tough SDR handheld radio. This is typical of the so-called for soldier radios, such as Takrad. Bittium's handheld radio, on the other hand, is positioned more as the leader's radio, when e.g. the radio must have a longer range than a soldier's radio. Greater range can be achieved, for example, with lower bandwidth, lower transmission frequency and higher transmission power. On the other hand, the larger supported bandwidth of Bittium's handheld radio allows, for example, higher data speeds.

So, in summary, we could say that Bittium Tough SDR Handheld radios fit well with short-range military radios, giving the defence forces a significant additional advantage than if only short-range handheld radios were used. Furthermore, Bittium's overall solution is complemented by Bittium Tough SDR Vehicular vehicle radios from the Tough SDR product family and TACWIN products of the tactical backbone network, creating a unified, scalable and data-secure C5 system from the soldier to the commander.

Feb 14, 2024 - Did Bittium mention that at the end of 2023 or at the beginning of 2024, some tender related to defense was about to be concluded? Is it completed or is the work still in progress?

In the Financial Statement Bulletin 2023, published in February 9, 2024, we said that the international pilots of the Defense business progressed well, but more slowly than expected. The pace of tenders is always determined by the customer, and as they are not generally public, we are not able tell more about them.

Feb 5, 2024 - The SDR letter of intent with the Finnish Defence Forces is almost 7 years old. Now would be the time for Bittium to fulfill its promises and start making profits for investors. Why have Sankala and some others from Defense and Security Business segment left the company, if the SDR is about to take off?

The cooperation with the Defense Forces for the development of Tough SDR radios has indeed already started in August 2017 with the signing of the letter of intent, which started the development of the products. 1.5 years later, in December 2018, the letter of intent was followed by the signing of the purchase agreement, according to which the Finnish Defense Forces ordered the first batch of radios for the ground forces. The radios were planned to be delivered by the end of 2020, but the delivery was delayed by about a year due to delays in the development project. The purchase agreement includes an optional additional purchase, on the basis of which Finnish Defence Forces have an option acquires radios.

You have been able to follow the progress of product development in our interim reports - both positive and negative steps. The radios are designed to withstand and function in extreme conditions and are the very top of their field, and they play a significant role in leading national defense.

In November 2022, the Finnish Defense Forces placed the first order, which was related to the optional additional purchase of the letter of intent concluded in 2018. The radios have been piloted and tested in practical exercises, through which we have also received feedback on their interoperability with other devices in the National Defence C5 System. Over the past year, pilot use has expanded in accordance with the plans and schedules of the Defence Forces. The Finnish Defence Forces are planning a large-scale deployment of the equipment, and with this systematic piloting, volume orders and larger-scale equipping of the troops can begin according to their schedules.

Naturally, we do not comment on why individual people have left Bittium. But it hasn't happened for product related reasons.

Jan 12, 2024 - Unfortunately, we did not hear about the NATO approval of the Bittium Tough Mobile™ or other decisions of the Defense sector’s tenders in 2023, which the company estimated happening in late 2023 and early 2024. Already a year ago, we were also waiting for approval for Bittium Respiro. In my opinion, this comprehensively describes Bittium's understanding of customers and authorities and their processes.

We have tried to tell and predict the future according to the best of our understanding and to correct the predictions when needed. The company must now and in the future better understand official processes. We understand our customers' processes better, but even those don't always happen predictably for reasons beyond our control.

Jan 12, 2024 - In the Medical presentation (Capital Markets Day 2023) it was said that the size of the sleep apnea diagnosis market is estimated to be slightly less than one billion euros, does this mean the entire market or the market that Bittium can reach?

Unfortunately, you didn't mention anything about the market size of the Faros family in the event, could you tell me how much the size of the market Bittium is aiming for.

At the capital market days, we talked about the growth opportunities of our business segments. In all these examples, we talked about general market growth expectations, and did not estimate Bittium's possible shares in them. Growth estimates were based on estimates made by Markets & Markets and Allied Market Research. According to these estimates, the international sleep apnea diagnostic devices market size is now estimated to be just under US $1 billion and is expected to grow at a double-digit annual growth rate going forward. The international market for ECG measuring devices and electrode labels is estimated to be around US $ 1.2 billion in 2022 and is also believed to grow at a double-digit rate between 2023 and 2030.

Jan 12, 2024 - You estimate the Defense & Security market size to be around USD 16 billion in network and radio accessories, and USD 4.9 billion in handsets in 2027.

Is this the size of the market where Bittium aims to be a major international player?

With the same logic as for the Medical market growth estimates, we also presented the market growth expectations of the Defense & Security business: the market for tactical networks and radios is believed to grow to 16 billion US dollars by 2027, and the market for secure smartphones is believed to grow to 4.9 billion US dollars by 2025. We have not published Bittium's goals regarding these market sizes.

Jan 12, 2024 - It has already been proven that Bittium is the National Champion, but still hasn't really achieved anything internationally. The increase in the next/current year's turnover does not indicate the company's success in recent years, only the contribution to the fulfillment of the letter of intent with the Finnish Defense Forces.

It's great that you consider Bittium to be the National Champion in Tactical Communications. We largely agree. You may not have noticed that our tactical network is also in use in Austria and Estonia. These are public references.

Jan 12, 2024 - How dependent is the Medical business on external sales organizations (Preventice & Resmed)?

Preventice, currently the Boston Scientific Cardiac Diagnostics (BSCDx), is very important customer to us. We have publicly stated that BSCDx sales are a large part of Medical's sales. BSCDx is our customer, which uses our products in their own service business. So, they are not our reseller - at least not yet. Resmed's role is more of a reseller, but we believe they will also use our products as part of their service sales. However, we consider it an achievement that BSCDx and Resmed use and sell our products.

We try to sell our products directly to service operators, and other sales channels are established depending on distributors. As a small top player, Bittium cannot afford to build an extensive distribution channel of its own. The bigger and better distributor we can get to sell our products, the better.

Sep 23, 2023 - Can you comment on the background of the profit warning in more detail? Based on the wording of the stock exchange release, the root cause of the profit warning is the component shortage that has been affecting Bittium for a long time, so apparently some important component batch for H2's deliveries has not arrived yet?

The profit warning is not directly related to the component situation, but to the prolongation of certain orders and delivery schedules. The schedules are made together with the customers to meet their needs. The impact of the component shortage on the business has decreased significantly since the beginning of the year, and our ability to deliver products is currently at a good level, so the ability to deliver has not negatively affected the demand for our products.

The durations of customer projects in the Defense & Security business can last years, even decades, and we aim to predict the number of orders and deliveries related to the projects on an annual basis as well as possible. In this case, company's previously anticipated deliveries moved somewhat forward. In the big picture, nothing has changed. Naturally, when the timing of product deliveries has been changed, it affects the increase in inventory value and cash flow.

Aug 23, 2023 - Are there component availability problems related to the Respiro product, or are sales this year just dependent on the development of demand?

The component availability problems are not related to Bittium Respiro, which measures sleep apnea. Sales of Respiro, as in general, of products considered to be new medical devices, will develop moderately at first. Before obtaining official approval or a sales license, the product cannot be sold for clinical use. A certain number of clinical trials are required for approval, but after approval, customers (hospitals, treatment facilities, clinics) conduct their own clinical trials before purchasing larger batches of equipment and starting patient care with the new technology. This is common market practice.

Another significant factor is the different insurance practices of different countries, which affect the sale of equipment and the process. We have sold and delivered the first Bittium Respiros to our customers in Europe, and they are currently conducting their own clinical trials as part of the commercialization of the product. Feedback from these studies has been positive. We are actively taking measures to promote and strengthen commercialization. We are also negotiating with several partner candidates to find good support for European sales.

June 23, 2023 - The company's CEO Hannu Huttunen told the company's goals for 2024 are based, among other things, to the expected start of some new rollouts of new products in 2024 (Financial Report Bulleting 2022 Webcast). So what is the basis for your estimate from 2024?

At the press conference, Hannu Huttunen refers to the new Bittium Tough SDR radios, whose actual rollout to the Finnish Defense Forces we expect to begin in 2024. Tough SDR customer pilots are also underway outside of Finland, from which we expect possible new product deliveries to begin in 2024.

We have said that we aim for an average annual net sales growth of more than 10 percent and an operating profit level of 10 percent, and we estimate that we will achieve these goals in 2024. The achievement of these goals will be affected by the normalization of the component market, which we expect to take place during the current year, when in 2024 we will be able to deliver products to our customers at full volume. In addition, future investments in focusing our operations and thus improving efficiency and ability to generate results will strengthen our organization and operations for future growth.

April 23, 2023 - What is the calculated payback period for the Veturi program? How much is the project expected to generate profit and on what timeline? How is this profit concretely generated? (Bittium Corporation Launches Seamless and Secure Connectivity Program That Has Received EUR 10 Million Development Funding Granted by Business Finland)

In the Veturi project, the company's own product line can exceptionally be developed simultaneously up to a certain stage, and the R&D investments are also acceptable for self-financing, so the project basically includes both research-oriented and product development-oriented parts. Therefore, the IPRs created in the project in question are basically the property of the company. Also in co-innovation projects, the company's own IPRs are typically kept by the companies, and at the same time, the right to use the jointly created IPRs is also created in the ways defined in the agreements.

Regarding grants, it should be noted that the company's own R&D investments (research, development and innovation) are also acceptable for the self-financing portion. In addition, themes are developed in the project's ecosystem, and the companies and research institutes involved also receive support from Business Finland separately through co-innovation projects. At the same time, researchers contribute with companies to the themes defined in Vetur.

In Veturi projects, the amount of additional personnel bound by the project is smaller than if the project were a purely separate project, because in the Veturi project, it is exceptionally possible to simultaneously develop one's own product range related to the theme up to a certain stage. So in this case, the project does not require a lot of "extra" personnel.

Unfortunately, we cannot give a direct answer regarding the payback period of the research project investment. The profit of the project will be generated through the expansion of the portfolio of products or their features in accordance with the strategy. In the role of a locomotive company, we will report on the project as it progresses on the website to be established for the project.

Mar 23, 2023 - Why doesn't the company reveal in more detail where the Research & Development investments go?

We have reported our product development investments regularly, almost product-specific by naming the products in our financial reports. To be precise, we cannot open up our product development due to competition technical reasons. We operate in the competitive field among companies much larger than us, and in order for us to succeed, product development and investments in product development are the key to succeed. The core of our strategy is to invest heavily in product development, and we have no intention of substantially reducing product development investments.

On this forum, we cannot tell important things that we have not told publicly before. The communication of listed companies must be handled in accordance with the regulations. But we accept the feedback and promise to strive to improve communication and see what and how we can open product development investments better and how much in the future.

Mar 23, 2023 - Why are R&D costs only increasing?

It is true that Bittium's R&D investments are significant, especially when the investments are compared to the turnover. The company's competitive advantage and future growth is based on competitive products, competitors are constantly developing their own products and we have to keep up with this race to succeed.

The graphs below show that, in absolute terms, R&D investments have increased between 2016 and 2019 and have declined since 2019. A similar trend can also be seen in the relative share of costs in turnover. The exception to this trend was last year, when R&D investments increased both absolutely and relatively, but they are still lower than in 2020. The absolute increase in 2022 was around €2.5 M, of which around half happened as planned and the other half was due to delays. The R&D investments of the Medical business area increased their relative share. Product development costs have therefore not continued to grow all the time.

After the collapse of service business turnover in 2017, the core of Bittium's strategy has been to grow the product business by investing very heavily in product development. The goal has been to increase the product business, whereby the share of product development costs will decrease relatively while staying at approximately the same level in absolute terms. We have succeeded in increasing product turnover from 2016 until 2021 - that is, five years in a row. Last year was the first in Bittium's history when product turnover decreased (-11%) and service business increased (5%) compared to the previous year. We failed to increase turnover in 2022, so we also failed to reduce the relative share of R&D expenses. Our intention is not necessarily to reduce the absolute amounts of R&D expenses, they may even increase somewhat, but we also do not keep them up unnecessarily.

The absolute level of product development investments will probably not decrease, but with the growth we aim for, the relative level will decrease. There is no special curtain and we open the product development costs, emphasizing our investment priorities, not project by project in detail.

Feb 23, 2023 - Even in Finland, doctors are not necessarily familiar with Bittium's solutions. Have you collected information from a significant market about the awareness of your products among potential customers?

Recently, we have not conducted surveys related to the awareness of our products in the medical market. And it is certainly true that not all doctors are familiar with our products even here in our home market in Finland. However, there are several large hospitals or clinics in Finland that use our products, such as KYS, OYS, HYKS, TAYS, TYKS or Coronaria and Oulu Heart Center, to name a few. Many operators, both domestic and foreign, can be a well-known factor even among clinicians, but in general it is not always so well known that these service providers use our solutions. Currently, small hospitals and small sales volumes would employ us too much in relation to the sales volume, which is why our strategy is to focus our sales and marketing resources on targeting service providers and well-known and trusted distributors. In marketing, one of our most important goals is to increase awareness, and we run targeted advertising campaigns not only for service providers but also for doctors (cardiologists, neurologists, specialists in sleep disorders).

Feb 23, 2023 - The end users of your products are mostly soldiers and healthcare personnel, do you have more than zero people from this background on your payroll?

Without breaking it down further, yes, there are more than zero people in each field on Bittium's payroll. Another very typical way to ensure a sufficiently broad customer understanding is to use external experts. For example, on the side of the Medical business, we have external doctors, some of whom are publicly on the Clinical Advisory Board (CAB). Board's task is to give feedback and conduct clinical research with our products, and to assist us with its own expertise in developing even more competitive solutions. CAB's doctors are also used to produce targeted marketing material for our customers, e.g. webinars, trainings, etc. Also on the Defense side, we have similar cooperation with military personnel.

Feb 23, 2023 - How does Bittium Respiro stand out from competing products currently on the market?

Bittium Respiro is one of the smallest sleep apnea measuring devices on the market, if not the smallest. The device is very competitive in both its technical performance and physical characteristics. The solution representing the latest technology supports 12-channel measurement, which makes the measurement very extensive. The solution supports three different configuration options, which is a big advantage for the customer. The attending physician can choose what kind of measurement to prescribe for his patient, for example, whether an EKG measurement is required or not, or whether one belt is enough or whether two must be used. Reimbursement criteria for sleep apnea measurements vary from country to country, and the option to choose between different configuration models supports the reimbursement practices of different countries. User organizations (customers) can always choose the entity they need at any given time, so that the measurement can be reimbursed by the insurance company.

An integral part of the Respiro solution includes the cloud-based analysis software Respiro Analyst, regardless of time and place, which makes it possible to eliminate the need to install separate software for data analysis and diagnostics. The preliminary analysis made in advance by the analysis software can be easily modified by the doctor, which speeds up diagnostics. Of course, this is not a unique service, but most of the software on the market requires local installation. Based on the feedback, Respiro Analyst is a modern and easy-to-use analysis software.

Jan 23, 2023 - Is Bittium still involved in these (Satelliittiyhteydet yleistyvät vauhdilla puhelimissa – Useita kiehtovia projekteja on kulman takana, Tekniikka ja Talous, 29.12.2022). It would seem that the market has picked up now. Mexican IPR can also be used elsewhere?

We are currently involved in developing satellite communication technology for one of our customers in our Engineering Services business segment. We also continue to offer the development of satellite phones as a service, and the recovery of the market can create new opportunities for us. We are not developing our own satellite phone. Also, Mexsat devices cannot be directly used outside the Mexsat network, but a large part of the technological solutions of Mexsat phones are generally applicable to satellite phones.

Jan 23, 2023 - Patria received large orders for 8x8 AMV’s in Japan. What are the chances that Bittium's radios will go to these? How does cooperation with Patria play in general?

Tenders for tactical communication radio systems are usually always separate tenders. The radios selected in them are then integrated with the vehicles selected in a separate vehicle acquisition program. The procurement organizations are also completely separate, i.e. the people in the different armies responsible for the vehicles are not involved in any way with the organization responsible for the radios. Both organizations are looking for the best possible technical or commercial solution for their special area and needs. In addition, procurement schedules are usually in different cycles, and the budgets are usually not at the same time either.

We have continuous marketing cooperation with Patria and Bittium's vehicle radios are installed in Patria's vehicles at fairs and other marketing situations

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