Basler Aktiengesellschaft (BSL) Earnings Call Transcript & Summary

Welcome everybody, from Ines and myself, to our half year reporting. We are both happy to present today very good numbers and also a sound outlook besides all noises around us. Before we start with the presentation today, I also would like to remind you with regard to the disclaimer, that all statements that we are making today are views and assumptions made based on available information at this point in time. All forward-looking statements that we are making are by nature subject to significant known and unknown risks and uncertainties. We have prepared a presentation for you today. We start with an executive summary. I will then hand over to Ines, digging deeper into our financials. Also, the share development will be presented by Ines, then I take over again for the outlook. We have today, as always, time for Q&A session at the end of the call. Let's start with the numbers and let's start with the executive summary and the market view that we are in, or that we were in the first half of 2026. First of all, to say that the market ran better than expected. If we look at the numbers from the German vision industry, bookings are up 25% and billings were up 9%. There is a great momentum. We also see PMIs around the world in the, let's say, important economies that we are acting in are above 50 and trending positively. We see especially a strong development in semicon and consumer electronics and logistics, and then data center hardware production, which is driven by AI-related CapEx investments. We also see ongoing high competition intensity, especially in the Asian region. You know that the U.S. tariff situation is somewhat uncertain still. The geopolitical frictions, unfortunately, are rising, we have not seen any significant impact on our business so far. What is, let's say, coming on top now, besides the geopolitical environment situation, are more and more constraints on the supply side. We see in general, lead times are rising. We also see some bottlenecks on certain materials. We recently, just shortly before the earnings call here, we also experienced last week, the earthquake in Japan that had a disruption on the supply chain of one of our important sensor suppliers, Sony. On the FX side, also in the second quarter, we saw a development where the U.S. dollar and Chinese yuan were, let's say, not in favor, let's say neutral to us. We saw a headwind from Korean won and yen continuing. They are devaluating against the euro. What does it mean for us? Again, strong statements here. Bookings are up 60%, billings are up 36% compared to first half year last year, which means we are clearly outperforming the industry. We have a strong order momentum, it even accelerated in this second quarter, which gives us a good momentum and fuels the start into the third quarter. We also see very good business momentum in all regions, it's widely spread. However, by far the strongest momentum is in China, related to the Semiconductor and Electronics industries. With regard to the gross profit margin, we were continuing our high level in the second quarter, in total, we achieved 51.6%. We are clearly up compared to last year. EBIT almost quadrupled. This is a strong indication also of the scalability of our business model. Ines will dig deeper into the numbers itself. Also, the free cash flow was strong, even though we had also an increase on receivables. So far, the geopolitical situation, especially on the Iran war side, had no impact on our business. However, we have seen with the earthquake happening last week in Kumamoto, that a disruption in our supply chain occurred. This is currently under investigation and under recovery measures. We believe that this will have an impact on our production and supply in September and October. However, we are working hard to mitigate the risk. With regard to the team development or organizational development, we just progressed with a mode that we also reported in the first quarter earnings call. We try to keep the organization in its size as it is and scale up the revenue and also improve the gross margin, and by that, obviously also improve the bottom line results. You can see that we only increased, compared to mid of last year, the organization by and large 20 people or FTEs. The split amongst the different function has not significantly changed. What we are scaling is our R&D investment, we keep it from an absolute, in an absolute term, we keep it at the same level. This means at the moment, with a higher revenue level that our R&D quota, gross quota, is by and large 10%, 9.5%, compared to 13.3% last year. These investments are made into multiple different product and technological directions. We have invested and have launched products in the first half of this year in the direction of line scan systems, so-called TDI Vision Systems, for high-end applications, especially focused on electronics and semiconductor applications. We also have launch products in this 3D realm, namely the Stereo mini. This is mainly logistics applications that can be solved with such a stereo camera, 3D camera type or system. We also have entered into a new interface technology. It is called GMSL. This is in the mainstream products that we are offering. This interface has high real-time capabilities and also high bandwidth to transmit data. Last but not least, we also announced to the public one of the key innovation programs we are working on. We also launched this on the GTC, at NVIDIA. This is all about simulating all our components in the Omniverse world in order to enable our clients to test virtually all the products and only order hardware and build up a real system once they already know what they want to choose. These innovations and products have been presented in multiple different occasions. Some of them are stated on this slide. This brings me to the financials, and happy to hand this over to Ines.

Thank you, Hardy. Welcome also on my end. Here you can see the development and also the distribution of our sales. As previously mentioned, we have a pretty good order momentum. Order entry was up 59%. Revenue is lacking a little bit behind, but above 30%. As you also heard, there is a growth in all of the regions. For the order entry, we really have every region above 30%. Here, China is especially sticking out. Taking a look at the overall revenue, of course, the overall number is there with EUR 152.4 million, but we also have a little bit of a distribution change, with China picking up a little bit of a share. Now being 29%. We see in general that the order entry is above the revenues. It is still monitored, but our customers are also placing the orders a little bit into outer quarters, so that we can now have a starting with a good backlog into our next quarters. Here you can see the development again. We have, as I said, we have a positive book-to-bill and also a positive momentum in the order backlog. Jumping into Q3 now with not only a good backlog, but also beginning weeks of very good demand. This now has to be matched with the supply, as you heard, and as you will hear again when we go to our outlook session. So far, we need to catch up with our billings, but 36% above last year and very good development so far. Gross profit margin, this is really to my heart, because we made the second quarter above our plan. You all know that we are aiming for this 50%, and now for the second time, with a very good revenue also. We have a good grip because we did not increase our workforce and can really leverage now. We, of course, also have the help from the currency so that we do not have further loss. Second time is in Q1, 51.6% above the 50 and well above the margins of last year. A little bit of a different picture this time in the EBIT. We announced already last quarter that we will not see that especially high EBIT margin again because we already assumed that something is going on. Here you can see that we have a push rule from the gross margin, this EUR 1 million that we get out of gross margin also ends up in our EBIT. We had a pickup due to a variable salary structure and also due an efficiency project to increase the automation all over. That is why you are seeing the EBIT margin lower than the EBIT margin of Q1 and on a cost level that we are also perceiving at least for Q3 and then having maybe another point in there for Q4. Good. I think this is a summary, we ran all over, right? Again, to point out the gross margin, when you take a look, it is 5 percentage points over. Also the EBIT margin still, last year, we were coming in with 7.7%. Now, not only two-digit but above the 20 with continuing trend in not increasing the cost base so much. Here also some talks. You might have all looked into our balance sheets, maybe some talks to the operating cash flow here. Overall, it's up, but our short-term asset structure changed a bit. We are, of course, monitoring and steering our working capital and working capital days for the days and receivables are up. This is coming through two factors. We discontinued our factoring because of a cost analysis that we have behind there. You see some of the factoring part, which sat previously in there now walking into the accounts receivables. We also still have the same trend in China, with customers requiring longer payment periods. That doesn't help too much in the days of receivables. Steered against with other short-term financial receivables, helping here in the picture and also getting a good grip on the accounts payable side. That positive trend in the OCF and with that, of course, positive trend also in the free cash flow where we want to have it. Here, this is a summary of the first picture now as a table, as you already know it. Maybe here to point out, we have our liabilities to banks decrease to plan. We are currently now running at EUR 40.6 million on a decreasing path because we are getting our debts down by the quarter. Cash equivalents up, could be a bit higher if we would have higher conversion rate in the receivables, but definitely positive trend in here. That's why also being up in the net debts with a positive effect now only being left EUR 10 million. Jumping to the share. This is no more changes or not a lot of changes as usually. You know that picture, we don't have much fluctuation in this one. We had a lot of fluctuation, of course, in the quarter. We were ending up, 5th of August, we were at EUR 26.8. Today, a little bit of a rally, huh? We watched EUR 24-EUR 26 up and down a bit, but I think the overall trend is visible and very positive from our point of view, matching to the picture that we have. Now coming to the outlook already.

Thank you, Ines. Taking over again for the outlook and maybe giving you, first of all, an assumption that we base our outlook on. First of all, we expect for the remainder of the year, the computer vision market to develop positively. We see step-by-step a broader recovery. It all started more in semicon, consumer electronics, data center, hardware, and logistics, but we see step-by-step Capex investments also in other area happening that is fueling the demand for automation and for our products. We foresee that the trade and geopolitical conflicts will not be solved. They will most likely rise over the course. The uncertainties will stay high, and combined with the Middle East conflict, makes the H2 difficult to predict. To a certain extent, however, we have seen so far, as mentioned earlier, no significant impact from those conflicts. Currency volatility, we assume that more or less the currency will stay where they are at the moment, the currencies that are important to us, so that we continue to have weaknesses for the Korean won and Japanese yen and a relatively stable situation for Chinese yuan and U.S. Dollar. We believe that the supply chains will tighten more over the course of the next months. It's very important that we stay close to our suppliers, that we have a good supply and demand planning to have good transparency and match those two worlds together. With regard to the earthquake, maybe here some more information. Exactly a week ago, an earthquake happened in the Kumamoto area, which is one of the main areas in Japan where semiconductors are produced and also semiconductor machines are being produced and developed. There is one crucial foundry for us. This is the Sony image sensor foundry, one of the leading foundries in the world to supply the world with image sensors. Due to the earthquake, this Kumamoto fab was shut down. It's still shut down and under inspection. However, there is already ongoing measures to bring this foundry back on track, and the forecast from Sony is that the Kumamoto foundry will be back to its original productivity by mid of August. We talk about two, three weeks of impact, not months. We are on a daily call with Sony, what this means to our supply chain, but we have to put this into our assumption that there will be a disruption that cannot be caught up in the next months, as the foundry was running at 100% utilization already. With regard to competition, no change. We foresee continuing high intensity of competition, especially in China and the Asia Pacific region. Putting this all into consideration and with our year-to-date results, we are increasing again our guidance for 2026 from originally EUR 247 million-EUR 270 million, now to EUR 270 million-EUR 290 million revenue and EBIT margins in between 12.5%-14.5%. Beforehand, we were projecting 9.5%-13%. This top line is considering the hits on the supply chain. There is a clear statement from us that it's not a demand bottleneck at the moment, it's more a supply bottleneck. However, we are strongly convinced to get to these numbers, which is a significant increase compared to last year, obviously. On the EBIT margin side, we are also considering, besides the variable incomes that we will have also a bonus payment to our employees. It's not accrued yet, it's just that we reflect this in our guidance to give appropriate transparency about the thinking that we are having. We are definitely proud to present this. We are very convinced to get there, and it makes us even more convinced to get to our midterm guidance. This guidance is now one and a half years old, and we have the ability to get there already this year. What does it mean? This means to us, we will wait for another one or two quarters until end of the year to update our midterm guidance. Obviously, in the light of the current numbers and the current development, this looks weak to us. Please bear with us that we also want to investigate further a little bit how the markets will develop over the next two quarters. This brings us to the end of the slideshow, and we are happy to open the call for the Q&A session. Our colleague, Jan, will moderate this. You can either put your questions in the chat or even better for us, please show up your hand and raise your question verbally.

Indeed. Correct. We already have one person raising the hand. Let's try this. I will unmute you, Malte, and please try then to unmute yourself.

Couple of questions. The first is on the order intake in the second quarter, which was very strong. Where we can elaborate on which applications drove the upside or the further increase in comparison to an always very strong first quarter. More or less the EUR 10 million additional orders you booked into the second quarter, was it across the board? Did you see increased pull-forward effects? Anything you can highlight?

We can directly jump into this. What we are seeing is what I mentioned. It's a combination of a wider spread CapEx investments in many different verticals, actually. Even an acceleration of the key industries that are driving the growth at the moment, namely CapEx investments in semiconductor, CapEx investment in consumer electronics, so tablet, smartphone assembly, and other gadget-like parts and such. We also see significant momentum and increase in the AI-related hardware CapEx production. All machines that are needed to produce the semiconductor, but also downstream to produce hardware for data centers that are in the current planning and needs to be equipped in the next quarters. These are the key verticals. We also, from an order entry, got good momentum from the logistics side. This is mainly happening in the U.S., this is what's behind this even higher momentum in Q2 compared to Q1. There is also another effect into the Q2. This is because of the fact that the supply constraints are rising, lead times are rising, customers start to order a bit earlier. The horizon of orders that we have in our order books is longer than normal at the moment. This is also another effect that happened in Q2.

Okay. Is that quantifiable? We pull forward the fact that, I don't know, maybe 10%, 10%-15% in that range?

It's pretty difficult, but in the range of 10%-15%.

Okay. With respect to the Sony issue, your guidance, the upper end of your guidance range said EUR 290 million sales this year. Does this represent the maximum capacity you might produce with respect to the supply shortage for image sensors? Or is there additional kind of caution baked into, like you did earlier in the year with respect to global conflicts or whatsoever?

Yeah. The main bottleneck we are talking about at the moment is really on the supply side. The guidance we have given out at the moment is, to a certain extent, let's say under uncertainty in a way that we don't know exactly at the moment, the impact on the supply side from Sony to us. They are still in investigation. Based on the current knowledge, we have made best guesses. The EUR 270 million-EUR 290 million is our best estimation, based on information that we had last night, or yesterday afternoon, actually, because we got daily information the last week. This is what's put in this forecast. Yeah. It might get worse, it might get even better. This is what we see as a reasonable corridor for our guidance.

Okay. You're more or less backed into the full outage for two to three weeks, with an impact then on the late Q3 and Q4.

There is a full outage of two to three weeks, and you also have to consider that there is work in progress that was shaped by the earthquake. This work in progress is still under investigation, and we have no clear information about what does this mean exactly to us. We have assumptions that are very much shared with Sony, and I think these are sound assumptions. We will learn over the course of the next two, three weeks, what is really the impact on the work in progress. What does it mean for our supply, to our production planning? This comes on top of a two to three weeks outage.

Okay. Understood. On the gross margin, that was obviously pretty strong in the first half of the year. Now the second half might have a bit lower loading due to the capacity or supply issues. What are your thoughts about the gross margin expectations one should have for the second half of the year?

In there, you saw that the gross margin was pretty stable, right? We had the EUR 75 million-EUR 77 million revenue. We are basically really leveraging all of our indirect labor in the gross margin and have a flexible temp approach in the direct labor. If the revenue is going down, it doesn't matter if it's demand or supply, the coverage of the indirect labor will, of course, be lower. We are definitely not expecting this level of 51%-52%-ish being down, depending on the revenue level, even below 49%, 48% in the baseline. As we said, we have baked in also into our EBIT outlook. We have baked in variable bonus payments, let's say. Not normal variable salaries, but these will also go to the gross margin folks, so to people also in production. That's why we are also expecting a hit to the gross margin whenever we decide that we are going to do that in the corridor. Really possible that we are seeing a 47%-49% in the next two quarters.

Okay. To the supply chain in general, what are your thoughts about then going into 2027, you see to support stronger growth? Obviously, order entries are supporting higher quarterly run rates. What's your view on the supply chain then going into the next year?

The view is definitely that the situation will not get easier. We are already working with our suppliers on the next year currently. We are positive that, with starting early working with our suppliers, that we create a situation where we would be able to even increase production volumes compared to this year. Then it's depending on the demand that is kicking in. It's not getting easier, to be honest. As you know that the semiconductor processes are long. We talk about 30 weeks process time and for many semiconductor manufacturers, the buffer stocks are empty or low. It's foreseeable that the situation, if the demand stays high, that the situation in 2027 is definitely not getting easier.

I am checking the chat, and I see that Lasse Stuben is also raising his hand. Let me try to unmute you so that you can ask your question.

Just a slightly bigger picture question. How are you thinking about the sustainability of the demand you are seeing at the moment? We have seen situations like this in the past where, maybe you would have started increasing headcount. You have clearly decided not to do that really in a big way, at least in the first half of the year. Just trying to get a feel for, I guess, generally, the outlook for OpEx based on your view of demand into the second half. Which seems like it stayed strong, but maybe also into 2027. How you're thinking about sizing the organization accordingly?

With regard to the demand, Lasse, when we talk to our clients at the moment, I can say that all of them continue to be bullish for the second half of this year, also for next year. To be honest, we as a management team, with the backlog that we are having, with this feedback that we are seeing in the market, we are also very positive for the remainder of this year. It's more the question how we manage the supply in order to best match supply and demand. For next year, I think it is wise to stay careful at this point in time because the demand is significant, as we can see. We know how the, let's say that the average compound annual growth rate in our industries used to be around 7%-8%. We believe there is no reason why this will significantly change in the future. This means after such a high up cycle, there will be also a down cycle. The only question is when does it kick in? It could run the full next year, this up cycle, but it could also kick in next year. The only thing we can do as a management team, and we are committed to do, is to be very careful with our fixed cost structure. To make sure that we can manage all the volatility appropriately and can, let's say, with full throttle, further continue our strategic path even if, let's say, a downswing will happen. This is how we see it at the moment.