Barco NV (BAR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for joining our earnings call for the first half results 2026 here at Barco. My name is Willem Fransoo. I'm Director of Investor Relations. I'm here in the room with our CEO, An Steegen; and CFO, Ann Desender. We will present first our results, which will take about 20 minutes. And after that, we will open for questions. And I will give the word first to our CEO.

Thank you, Willem. Good morning, everybody. Let me start with a summary of the results of the first half of '26. So orders came in at EUR 468 million. That's 4% lower than last year. When we calculate that at constant currency, it's flat. Sales landed at EUR 418 million, 8% below last year, 3% if you calculate at constant currency. So after a difficult first quarter, we saw the momentum improving in the second quarter, where we saw orders picking up towards the second half of the second quarter. Also worth mentioning is that Diagnostic Imaging as well as Control Rooms really stood out for their solid performance throughout the first half year. Order book is now at EUR 568 million. That's up compared to the end of '25. At that point, we're at EUR 492 million. This, of course, gives again a solid basis for the quarters to come, a solid foundation for the quarters to come. We also integrated now after the successful acquisition of VerVent Audio Group, we integrated VerVent in our Entertainment division. So they form now third BU under Entertainment. It's called Consumer Experience. And for the 2 months that VerVent has been reporting into the Barco financials, they also basically show solid growth. Then we have also the gross profit margin. So gross profit margin was resilient despite some product mix effects that we saw. EBITDA landed at EUR 26 million, that is 6% of sales, and that was mainly driven by the lower top line and the resulting operating deleverage that we saw from the lower top line. Now for outlook for the year, management expects and reconfirms basically that we will basically grow sales over last year, including VerVent. And our EBITDA, we expect to land between 11% and 12%. And now I'd like to hand it over to Ann Desender for some more financial details.

Starting on the top line and orders and sales. So as indicated by An, orders ending in line with last year at constant currencies, sales at constant currencies, 3% below last year. If you look to the different regions, EMEA, orders below last year, sales minus 5%. There as well in the first and second quarter have been largely impacted by weak investment climate linked to the Middle East. And not only, I would say, the shipments that we have towards the Middle East, but also a lot of our customers in Europe having impact on that one. Americas saw a recovery in the second quarter, so also after a difficult first quarter, quite a nice uptake in the second quarter and actually landing there already at the same level sales as last year's second quarter. When you look then -- look into the orders, orders in the Americas for the first half, 8% above last year, 2 that are standing out in there actually is both Enterprise and Entertainment. On the figures which you see here, orders and sales on the Americas, plus 8% and minus 11%. This is reported on the sales, the biggest impact we have there from currencies, as you do know. APAC also saw a better second quarter than the first quarter actually, with in particular, order and sales growth in the second quarter for both Healthcare and Enterprise as well as actually good momentum with Consumer Experience VerVent. VerVent who all in all, actually had a very nice quick start actually in the first 2 months that were included in our figures. Landing at an order book at midyear of EUR 568 million, up EUR 67 million compared to the beginning of the year. In the EUR 67 million, including about EUR 15 million of VerVent, our newest acquisitions. And then for the rest, a nice growth, particularly in Cinema and in Control Rooms. When you look to the EBITDA bridge from last year to this year, FX has an impact more on the top line, quite contained, but negative on our EBITDA. So that's to the tune of about EUR 3 million. VerVent brought in the first 2 months part of our group, a positive contribution to our EBITDA. The big down and impact is actually on the lower volumes of the lower sales, which we faced in particular, in the first quarter. We could have a resilient or we could contain our gross profit margin despite the lower volumes, and that is coming with mix with more sales and service with more recurring revenues, which recurring revenues actually as to the total of our sales is now reaching 13% of our total sales. So all helping in that one. OpEx and diverse cost measures have been taken. More of that impact will be or largely the impact will be in the second semester. In the first semester, those were offset by R&D investment and particularly in Healthcare and in Meeting Experience. And then we have quite some one-off orders impacts actually, including in the acquisition cost and then purchase price accounting impact in the last year, some other income related to U.S. grants also included, which we do not have this year. So that order making the building blocks and to explain the lower EBITDA compared to last year. So lower sales actually and FX and one-offs hampering, but we could contain our gross profit margin and a good first contribution of VerVent. When you look further down into the P&L from EBITDA to net earnings, depreciations are evolving primarily as we further build out our Cinema-as-a-Service portfolio. So depreciation and amortization at EUR 25 million in the first semester. We did take restructuring costs and restructuring measures, which indeed will have an incremental impact in the second semester in our P&L. Total restructuring cost, EUR 8.4 million, except for EUR 1 million that will have a cash effect. The biggest one is the closure of the R&D facility in Norway and then diverse other changes actually across the regions with the biggest impact here in Belgium. Then interest income, some lower than last year as we changed actually from a net debt to -- net cash to a net debt situation after the acquisition of VerVent. Income taxes, effective tax rate constant at 18%. And with that, landing at a net result of minus EUR 4.8 million. Moving over to free cash flow. Free cash flow in the first semester, minus EUR 37 million. The big impact there, and that's also immediately the big focus area for the second semester is higher inventories, which we have. Gross operating free cash flow landed at EUR 20 million. This is after EUR 4 million of restructuring costs already paid. When looking at our working capital, the increase is primarily situated in inventories, EUR 57 million higher and impacting on the free cash flow compared to the beginning of the year. We have in there the bigger impacts are in Entertainment actually. We had -- we've taken advanced purchase of components and memory chips where there are price increases and to be ahead of those to also secure our gross profit margins in there. But yes, this being said, we also landed with some more finished goods than we wanted in view of lower-than-expected sales. The average payment terms of customers and suppliers and a good balance, meaning DSO at 73 days, DPO at 81 days. Capital expenditures, EUR 15 million, in line with last year, EUR 1 million higher, including the bigger ticket items there, the automation in our factory in Kortrijk here and then Cinema-as-a-Service included like we had also in the previous years. Our net cash position has shifted to a net debt position, EUR 33 million midyear. This is after the cash out for the VerVent acquisition for an amount of EUR 134 million cash out, EUR 44 million of dividends, EUR 11 million of share buyback and of course, the impact of the free cash flow in the first semester. Looking to our sustainability KPIs, going there strong and with a consistent progress actually on the different KPIs. Eco-labeled revenues at 77% of our total sales, so a further increase of 1% versus last year and well on track towards our target set actually with House Dubai, the new portfolio of Immersive Experience, Healthcare and across the divisions actually. And of course, Control Rooms shifting more to software is certainly helping there out as well. Pointing at our Net Promoter Score as well stood out at 66 so another 6 percentage points up compared to the full year of last year. We do an extensive inquiry on this customer NPS twice per year actually and are happy to report and steadily increase actually in that performance. So yes, very happy customers. We just would like that they even buy more. With that, moving it over to the divisional updates, and An will give some more color on that.

All right. So let me start with Entertainment. So we saw a resilient performance in Entertainment, sales landing at EUR 199 million, which is 5% below last year, but orders 3% up to EUR 243 million. From EBITDA perspective, we landed at 8.4% of sales, which is 2 percentage points lower. Partially is that, that's driven by the lower top line, also some of the acquisition costs, and we are already partially also offsetting that with some of the cost measures that we took in the first half, but we'll see more of that in the second half. Now zooming in on Cinema, solid performance in Cinema. I think with the movie slate getting better, that is always a good sign for exhibitors to resume their lamp-to-laser replacement wave, which we also see. China, though remains soft, but we could cover actually with the replacement waves in the other regions, we could cover for the shortfall in China in Cinema. Also our HDR by Barco, so our new premium cinema solution with the light steering projectors is very well on track. We basically have now more than 100 systems that we plan to have installed by the end of the year. We see that a lot of momentum building up with the studios. Today, we have already secured more than 45 blockbusters. If you compare that to last year with about 35, which is definitely a good sign that people appreciate actually what they see in HDR by Barco. Also not to forget, this comes with a new business model for us. So we are not only selling projectors, but we are also basically now a bigger share in the Cinema value chain with recurring revenues. Then for our Immersive Experience, where we're very proud to say that we are now the #1 in DLP projection in Immersive Experience. Now we see softness or we saw softness in the rental market. That was definitely also driven by the situation in the Middle East. At the other hand, we see stable performance in fixed install. And there, definitely, theme parks is continuously growing and is definitely proving to be a very strong growth pillar for Immersive Experience. Now towards the second half, of course, the situation in Middle East needs to get better. But at the other hand, we're also launching new products. So there is our I65 mid-end projector series that we are launching actually in September and more features on Encore 3, which will also continue to boost our Encore 3 platform. From VerVent's perspective, as I mentioned already before, VerVent is now integrated as a third BU in the Entertainment division. Very solid performance in the last 2 months, driven by the premium headphones and also their automotive audio solutions where they basically provide technology license to the automotive sector. Here again, for us, this is a good indication already that merging visualization and audio is the right way to go to provide growth in our Entertainment division. Over the longer term, we truly believe in the growth of Entertainment. I think we have the right ingredients to really be a key player in the Entertainment market. That starts with technology leadership, technology breadth, market leadership, a premiumization wave that is going on, especially in Cinema, but also in the consumer space. And then, of course, the customer contacts, the customer relationships that we have. On top of that, of course, the expansion where we are not only going to focus now on visualization, but also on audio solutions, which basically, if we go to the next page on VerVent. So again, the strategic plan why we acquired the VerVent is because we truly believe that a true entertainment experience is a combination of visualization and audio. This is also consistent with what we have said during Capital Markets Day that we are going to go all in on Entertainment because we -- by adding audio, of course, we can tap into a bigger addressable market in the Entertainment sector. Now we have 3 objectives with this acquisition. The first one is clearly growth, and that starts already short term by bundling Barco solutions with the audio solutions for the consumer market, especially in home cinema. There we have the projectors available. They have the audio available bundling and combining, of course, the technology, but also our go-to-market channels there to create extra growth. In the longer term, we will also work on audio solutions for Barco's professional market, so in Cinema and in Immersive Experience. And that, of course, also will create synergy and a bigger ecosystem play for Barco in those markets. That's number one. The second reason is innovation. Both Barco and VerVent, we are engineering companies, we're technology companies. They basically know best what to do in audio processing. We know best what to do in image processing. And we truly believe by combining image processing with audio processing in the future and also the system integration because both of our companies are, of course, experts in system integration that we can come up with solutions, which the 2 of us separately could not do. And the third one is brands. Barco has, of course, brand in visualization, but VerVent Audio has 2 very iconic brands, Focal and Naim, and they are very well known in the audiophile market, but also in the high-end home market. They're further expanding actually in what they call lifestyle applications, also the automotive sector. So that is, of course, where we will leverage and preserve the brands of VerVent. In the professional markets, once we start adding audio to the professional markets, then, of course, also the Barco brand is very well known in those markets. But that is basically our main focus and the main reason why we acquired VerVent. Let me then move to Enterprise. So we saw mixed results in enterprise, continued softness of the BYOD market in meeting experience, but that was offset it with a very solid performance in the control room market. When you look at the numbers today, orders landed at EUR 115 million, which is 5% up, mainly driven by Control Rooms. And sales is down with 9%, landing at EUR 98 million, mainly driven by the lower top line sales in Meeting Experience. Gross profit margin did go up with 2 percentage points. Also here, having more software in the mix, mainly coming from Control Rooms is adding to our gross profit. EBITDA landed at about 6% of sales, mainly driven by top line and lower top line in Meeting Experience. So talking about Meeting Experience, we see continued softness in the BYOD market. This is already now a couple of quarters that we see that. Overall, the market is slower. We see replacement pace also being slower. We did not grow in the first half in EMEA and in the Americas. We saw a slight growth in APAC. Meanwhile, we have launched, of course, our ClickShare Hub, which is our Microsoft Teams Rooms system, and that's gradually getting adopted by the market. Here, we are certifying more bundles. And what that means is that we combine our ClickShare Hub with the video bars and the cameras of third parties. And the more bundles we certify, of course, the more reach we have. On top of that, we are adding also more features to the ClickShare Hub. The last one we now launched was the BYOD switch that we implemented on our Microsoft Teams platform so that you -- depending on the type of meeting you have in one meeting room, you could switch from a BYOD setting to an MTR setting. These extra features, also the extra bundles that we're certifying is definitely going to stimulate our ClickShare Hub sales for the second half. Moving on to Control Rooms. So that was definitely the highlight on the first semester. I mean, as well orders as sales did grow in all regions for Control Rooms. That was a combination of our control platform, but also the UniSee wall, so the LCD wall as a replacement wave that we're introducing for the Rear Projection cube right now. The control platform is doing extremely well. That represents now already 43% of the total sales and is growing rapidly year-over-year. And that reinforces basically the strategic decision that we took a couple of years back that we said in Control Rooms, we are going to really focus on that software-based secure control platform, which we're migrating now to what we call KVM over IT system. And this is what the customers seem to want because they want basically software-based, connect people, systems, different systems and different sites. And that is now exactly what the control platform is catering to. Then moving to Healthcare. Here, definitely mixed results, solid performance in Diagnostic Imaging, but a very weak performance in Surgical. And if you look at the numbers, orders at EUR 109 million, down 23%. Sales at EUR 121 million, down 12%. And if you look at the EBITDA, well, very low, EUR 3.5 million, and that only represents 3% of sales. Main reason for the low EBITDA is, of course, the lower top line in Surgical. It's also the fact that we are transforming surgical, and I'll give you in a minute a more explanation on that, which meant that we need to keep on investing in R&D. And also that all the OpEx savings actions that we took already, but that the majority of that impact that we're only going to see in the second half. But let me start with Diagnostic Imaging. For Diagnostic Imaging, very solid performance. We see the replacement wave in radiology and in mammography really getting traction. We are the leader in those markets. We are recognized as a leader. We have very high-quality products now in the field. And we feel basically we have a large installed base, and we feel the trust of our installed base in renewing their portfolios. Also in digital pathology, we're doing very well. As you know, digital pathology is a little bit later in the digitization wave, as we call that. We are going to this market with as well hardware solutions, which are the pathology displays, but also software solutions, which were developed within Barco. SlideRightQA is the one that we explained to you last time. This is now an AI use case to improve the efficiency in pathology labs. And the combination of these 2 is really opening doors in pathology world. We're seeing a lot of traction. It's an emerging market, but we see a lot of traction. And we believe that Barco is one of the first movers in that digitization wave, and we basically want to really take share of that and also grow in this market. Which brings me then to modality. As you probably remember, end of last year, we made an organizational change that we moved modality with the operational center in Suzhou in China. The main reason to do that because modality for us that is custom displays for OEM, large system integrators in the healthcare world. It's a very competitive market. Cost and being cost conscious is really key in this market. That is the main reason why we moved this to Suzhou. And we see there our business stabilizing. We see basically new projects, new contracts coming in. So definitely there, we can confirm that moving this operational center to Suzhou was the right move to do. And then we go to surgical and the surgical market is weak. We -- as mentioned already a couple of times, we are losing big contracts. Typically, in surgical, they are very big contracts. They are for years when you are designed in. And it turns out to be extremely difficult to replace these big contracts in a short period of time. We are putting all hands on deck there to basically fix this. That means building up customer relations, working on new projects, which also means new products that we need to develop. There we're, for instance, focusing on what we call NexxisCube, which is a mid-end solution for the Nexxis market, new display types, also in Summer Valley where we are introducing edge compute so that we can run real-time applications on that system. But all of that takes time as well the trust as the development, as the design-in cycle with these large system integrators, it takes time. We have taken more measures in surgical. We basically -- and in healthcare in general, we have moved now the entire Healthcare division under one leadership. That's under John Zhao, who was leading modality in China. And the reason why we do that is to avoid fragmentation to simplify the organization to speed up decision-making and definitely also to improve execution discipline. So that combined now with the new portfolio we are building with also our migration into more software, which is definitely already happening in diagnostic imaging, but will also happen in surgical. This gives us confidence that we will turn around healthcare and that we also here have the right ingredients to turn it around and turn it back into growth. That said, maybe a very quick recap on our strategy. This is what we also showed you at Capital Markets Day, and it's what I have repeated now already for our divisions. For Barco, we have multiple layers. Historically, we started with hardware. We built and pioneered definitely in network solutions on top of that. But more and more, we will differentiate actually in software. And that starts with adding edge compute to our hardware. And then, of course, building software applications on top of that. That is still very consistent. And I think you see this actually the strategy rippling in many of our businesses moving forward. Then our priorities for the second half. No, yes, maybe first -- no, no, we can repeat. Yes, of course, it's about bringing new products in the market. This just gives you a summary of the product launches that we did in the last 18 months. And as you can see, there are very big new platforms that we have brought to the market at Barco. There is HDR by Barco, which is, of course, a completely new cinema premium solution. There is Encore 3, complete new event switcher solution. NexxisCube, the mid-end solution for Nexxis. New displays going from a OneLook 32-megapixel NDI to a 3D monitor screen for diagnostic applications. ClickShare Hub, completely new platform and more to come, Brilliant Assist, voice control, surgical displays, more to come here. But we have not been sitting still in bringing these new solutions to the market that sometimes takes some adoption time, but I think we're on the right track here. And then that brings me to our focus areas, of course, for the second half. Yes, we continue our innovation where you will see more software and AI coming in. That also means that we are going to strengthen and make sure that we can maintain our leadership position in our core markets where we see the best strategic fit. We will also sharpen our focus and our investments on businesses where we see structural growth into the future. And last but not least, of course, also towards the second half, cost discipline and making sure that we introduce the right organizational efficiencies is key also to maintain our profitability, which leads me to the last one, which is the outlook for '26. So a year geopolitical instability and uncertainties continue to impact the demand and visibility throughout the first half, but management expects full year sales above last year, including the recent acquisition of VerVent Audio Holding and an EBITDA margin in the range of 11% to 12%. And with this, I'll hand it back to Willem for Q&A.

Thank you very much, An and Ann, for this presentation. I think we are ready for the Q&A. [Operator Instructions] I see that Marc is the first one. Marc Hesselink with a question.

First question is on the guidance, let's call it the implicit guidance for the second half of the year, which basically implies a very significant improvement versus the first half. I mean that's normal with your seasonality. But I also think that will be higher than next -- if you take the midpoint of the guidance higher than last year, which seems a bit of a challenge. I know you have talked about cost cutting, but maybe can you walk us through how you can achieve the midpoint of your guidance range in the second half of the year?

It's actually based on primarily 3 or 4 things being in the second half, there will be 6 months of VerVent where we have in the first half 2 months. So that has an impact. We saw on the top line of our Polytan business, the second quarter a better momentum already, especially already picking up and being at the same level of last year in the Americas. So in that sense, that's where we then have the outlook on the top line for the second semester in there and this on the 3 divisions actually. Gross profit margins were resilient in the first semester despite a lower top line. So in that sense, further, I would say, keeping and even further improving. That's one -- and then it's about operating leverage. So operating leverage on that higher top line actually not only operating leverage, but also we took quite some cost decisions actually in the course of the second quarter, which then have an accelerated impact in the second semester. So it's a little bit all of that together, actually, that makes up for the better -- far better, I call it, normalized result in the second semester.

Okay. Okay. That's clear. And my second question is actually on your '28 guidance, the 15% margin. Just conceptually, the businesses as they are today and maybe structurally some additional weakness in ClickShare. Is that still achievable? And is that in that time frame because it will imply very significant improvements in the margin over the '27, '28 period?

Yes. So we basically hold our guidance for '28. So we basically believe that we can achieve the EUR 1.1 billion. The portfolio mix, as you know, also the focus that we're putting today in our businesses and how the portfolio mix is going to turn out might be slightly different. We're adding also VerVent to that one. But we, in general, think with all the actions that we have in place and all the strategic road maps that we have in our businesses, that we can hold to our guidance of '28.

Maybe then as a follow-up, the EUR 1.1 billion because that excludes VerVent, right? I mean that was organic, the EUR 1.1 billion, right?

Yes. But now, of course, because VerVent is now part of our portfolio, we constantly optimize our portfolio. That is what we need to do in the dynamics that we see in the market today. So by '28, it's part of the portfolio. And that is, of course, included then.

Thank you, Marc, for the questions. Any other questions from other people in the room. You can raise your hand by tapping the hand at the top. We see a question from Trion. Trion Reid from Berenberg.

Hopefully, you can hear me okay. I just had a first question about the -- you mentioned about the component prices. And obviously, it's a reason why your inventory has gone up. And we've heard all about sort of memory shortages and prices going up. What -- how do you think about dealing with that coming forward in terms of increasing your own prices? And what do you expect that to have? What impact will that have on demand? You mentioned your NPS score going up. Does that leave room to increase prices without impacting demand in the future?