Cherry SE (C3RY) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Cherry SE's Analyst Conference in Q1 2026 Earnings Call and thank you for joining. You have just seen the video of Cherry XTRFY's launch of a new complex magnetic switch keyboard. The key component of this new gaming keyboard is tunnel magnetoresistance, abbreviation TMR technology, which is considered the next evolutionary step in magnetic switches. For gamers, this technology translates to noticeably higher sensitivity and shorter response time. Combined with an ultrafast TMR performance, the K5 Pro TMR is the ultimate tool for ambitious gamers who demand uncompromising precision, speed and comfort. So today's call is being recorded. [Operator Instructions] Joining me in the room today are Rogier Volmer, Chief Executive Officer; Jurjen Jongma, Chief Financial Officer and our working student, Tim; and we have Dr. Udo Streller, our Chief Operating Officer, dialing in from Auerbach. Let me briefly outline today's agenda. Rogier will open with his investment highlights and lay the foundation, reflecting on his first 4 months as CEO and the key strategic conclusions he has drawn so far. Jurjen will then walk you through our Q1 2026 financial performance, covering underlying revenue and margin development as well as free cash flow progress. He will then explain our financing strategy, including implications of the proposed reverse share split. Rogier is then going to present the strategic outlook and main aspects of our new transformation program, Project Blossom. After the presentation, we will open the Q&A session. With that, let me hand it over to Rogier.

Thanks, Nicole. Good afternoon, everyone, and thank you for joining the Cherry's analyst conference in the Q1 2026 results call. Today, we will first go through our Q1 results and then explain how we want to move the company forward. But let me start first with my observations, which will lead to how we want to move forward and a few key milestones of the previous quarter. So Cherry has a strong foundation. We have a trusted global brand built on strong engineering, and we have solid positions in office, gaming and security peripherals or input devices. We have super committed and engaged people and people that are super proud of our products. This is a real strength and a strong base to work from. But we also need to improve. Our organization is too complex, and we need to be faster and more focused. Our goal is to simplify our organization with more focus and execute with discipline. In the past months, I've spent time with our teams and review the business in detail. From this, we defined our priorities, what we will focus on and where we will invest. Later in the presentation, I will explain this in more detail through Project Blossom, our plan to strengthen the Peripherals business and return Cherry to sustainable profitability. Before we move to the Q1 financials and year-end, let me highlight some of the key milestones from the first 3 months of 2026. We saw some first signals of encouraging progress in Q1 when it comes to our performance, our financial performance. Our EBITDA margin improved by more than 5 percentage points year-over-year, and this shows that cost control is working. We also had a positive free cash flow of EUR 1.1 million, which is around EUR 10 million better than last year. Our Digital Health business performed and is performing very well. The revenue tripled on a comparable base versus last year, and Jurjen will explain this more in detail in the finance part. We also announced the EGM, the Extraordinary General Meeting on May 22, where we will propose a 4:1 reverse share split. This is an important step to improve our capital market position and support potential future. With Project Blossom, we are now -- we now have a very clear plan targeting to be EBIT breakeven in 2027 through a combination of rightsizing the company and growth initiatives. As I mentioned, more on this after financials that Jurjen will now present in detail. Jurjen?

Yes. Thanks a lot, Rogier. And ladies and gentlemen, a very good afternoon. Let me take you through our Q1 2026 financial performance. First, on revenue, you will find that it is a bit of a mixed bag. And I think the performance in Q1 needs a bit of background color. So group revenue came in at EUR 20.8 million, which is approximately 18% below Q1 2025 revenue of EUR 25.3 million. Unfortunately, there is a number of effects that makes comparing Q1 2026 with Q1 2025 difficult. For this, we inserted the smaller graph at the top right of the visual for easy reference. The effects relate to, first of all, in Digital Health & Solutions, there is EUR 1.1 million of Active Key sales in Q1 2025 that obviously was divested in the course of Q2 2025. And then in Peripherals, there is EUR 2.7 million of sales included in Q1 2025 that relate to SKUs that were sold in a transaction with our shareholder in Q4 2025, and we, hence, did not sell in Q1 2026. In addition, there is approximately EUR 700,000 of currency effects that negatively impacted Q1 2026 in comparison with Q1 2025. So as Rogier pointed out, on a like-for-like basis, sales in the DH&S segment more than tripled to a level of EUR 5.2 million in Q1 2026. At the same time, the trend in our Components segment continues to decline, reflecting the commodization of the Components business in general. Lastly, in the Peripherals segment, in addition to softness in the sell-in, which is caused by high channel inventories at our distribution partners, it's important to highlight that in North America, like I said, Q1 2025 includes sales of SKUs that were sold to Argand in the third quarter. This affects a further decline in sales in Q1 to the tune of EUR 2.7 million. And like I said, negative currency effects further impacted our sales to the tune of EUR 700,000. So on a like-for-like basis, the segment sales developed as follows: an increase of EUR 3.6 million in DH&S and a decline of EUR 3 million in the Peripherals segment and then lastly, a decline of EUR 700,000 in the Components segment, where we manage the quality of contribution margin. Moving on to the next slide, where I dive a little bit deeper in the quality of our earnings. First of all, EBITDA. So Q1 group adjusted EBITDA came in at minus EUR 600,000, a meaningful improvement versus the EUR 2 million negative in Q1 of 2025. Adjusted EBITDA margin improved by more than 5 percentage points year-over-year. The improved results are a direct consequence from 2 elements which are important to highlight. First of all, and I come back on this a little bit later, the margin management. Great performance in the DH&S domain, especially driven by very healthy contribution margins, stabilization of operational contribution margins in the peripherals domain and clear focus on positive contribution margin in the Components segment, albeit that the segment is small in absolute terms. Again, I will elaborate more on margins in the next slide. Secondly, cost management. Operational costs reduced by EUR 4.6 million in Q1 and even by EUR 5.5 million on an adjusted basis. It shows that our restructuring today is paying off and that we have a clear focus on spending less with a keen eye on liquidity and cash flow. At the same time, we also must be clear. We're not yet there where we need to be. Our cost base must be tuned to a level where we can also sustain lower levels of revenue. Rogier will come back on this later in the presentation, but it is good to see that the trajectory is positive and the drivers are structural and not driven by incidental [ effects ]. Let me end this financial section with some key trends on the next slide. I've elaborated on our revenue picture quite extensively. And when we turn our focus on gross margin, we see that the trend unfortunately is too [ erratic ]. While DH&S performs at a very good level, we're still not at the level where we need to be in the Peripherals and Component segments. In these segments, we strive for an average contribution margin of around 44%. You can see this at the bottom of the slide. We're getting close, but there remains work to be done. I'm very pleased with our free cash flow performance, but it must be very clear that eventually, free cash flow must come from operational business, of course, in addition to minimizing working capital. Let me now spend 2 slides on the announcement we published a couple of weeks back. We've sent out an invitation to our shareholders for an EGM taking place on May 22 and announced a reverse share split. Let me share some more details with you and explain the strategic rationale and the technicalities. As Rogier mentioned, we're proposing a 4:1 reverse share split for approval at the EGM on May 22. Technically, it means that 4 existing shares will be consolidated into 1 new share. The share capital will be reduced from EUR 24.3 million to EUR 6.1 million. And in parallel, we're proposing a simplified capital reduction to offset the accumulated losses on Cherry's balance sheet. This is purely a nominal capital adjustment. There is no cash impact. Economic ownership ratios remain unchanged, and existing shareholders retain the same proportional stake in Cherry. The strategic rationale is clear. The reverse split, [ for source ], carries capital market eligibility and it creates the structural basis we need for potential future financing transactions. It's a prerequisite and not a goal by itself. We're building the foundation from which future steps can be taken. We'll provide more details on our overall financing approach as appropriate once the EGM has taken place. Now let me walk you through the 3 pillars that frame our current financing situation and the strategic flexibility we have going forward. On the left, you'll see the key corporate action from November 2025. We announced potential sales of one of our business segments and the rationale is straightforward. Proceeds from the sales would directly reduce liabilities and free up capital to fund growth in the remaining higher quality business while at the same time, like I said, it would strengthen our balance sheet. In the middle column, we want to highlight our Peripherals division continues to be a strong market player. Rogier will elaborate on that further on in the presentation. We've identified complete opportunities to improve the cost base within the division and additional capital would meaningfully accelerate the pace of restructuring we have underway. On the right, lastly, the financing status quo, which is actually a positive of relative stability. Our EUR 23 million UniCredit facility does not mature until the end of 2027, which gives us clear runway. We closed Q1 2026 with EUR 3.5 million cash on hand. And importantly, the reverse stock split, which is the headline of this slide, enhances our opportunity for capital market solutions. A higher share price typically broadens the institutional investor base we can [ attest ] and improves the conditions for any future equity-related transaction. In summary, we've defined a path, monetize on DH&S, improve cost efficiency in Peripherals and preserve strategic flexibility to the capital market measures we've announced. We're confident in our ability to execute. And with that, let me hand over to Rogier to guide you through this. Thank you.

Thank you, Jurjen. All right. So before I speak about the virtual outlook in detail, let me start by addressing our Digital Health & Solutions business first. Digital Health is a strong business. It operates in a regulated market, and therefore, it has high entry barriers and good visibility in the health care market. The rollout of the telematics infrastructure or TI continues to drive growth. Around 32,000 health care facilities still need to be connected. This is because the rollout for the users was more complex than expected, and this demand is now extending to 2026, and that is what we clearly see in our numbers. In Q1 2026, the e-health terminal sales increased by 47% compared to Q4 2025. At the same time, we reached an important milestone. We received the final approval for TI-Messenger Pro after completing the certification process with gematik. This means the product is now launched and the rollout started in Q1 with the first users already on board. With the current state of the business and the strong momentum, we are very well positioned for the business for continued growth. Then on the Peripherals business. We start from a position of strength. Cherry is a premium brand with a long history, engineering history and that is also how we are being recognized and perceived in the markets that we operate. Our switch technology, combined with our hard and firm knowledge is well known and trusted by professionals, gamers and partners in the industry. This is a strong base we can build on, and we will build on. At the same time, we are changing how we operate. We will move to a more asset-light model, reduce fixed costs and improve efficiency. We're also focusing on our core input device categories where we are strongest. We're simplifying our portfolio so we can move faster and execute better. We are building a leaner and more sustainable business. This will help us to grow profitably with faster innovation, lower cost and stronger margins and cash flow over time. So briefly about the markets. The market that we operate in the global peripherals market is growing at a rate above inflation. Within this total market, both gaming and office peripherals are growing fast. The global gaming peripheral market is expected to reach about USD 12 billion by 2030 and the global office peripherals market should grow to around USD 60 billion. Our focus is to make sure that we capture our share of this growth. In 2025, we grew 13% in the Europe 3 markets. Europe is Germany, U.K. and France. This is for the corded keyboard segment. And with that, we grew faster than the market in the same period. Next to this, we also managed to increase our average price, bringing our prices closer to the market average, more in line with the Cherry brand positioning and the product quality. So the results of 2025 are that in the corded keyboard market in the largest 3 European markets, we are the leader with an increased market share of 42% and in Germany, even 60%. However, having said that, we are aware that the cordless keyboards are growing stronger, and our ambition is to grow our market share stronger in this segment. We go to the next slide. As mentioned in the beginning, we have launched several strategic initiatives to reposition the Peripherals business for profitable growth by focusing on 4 clear initiatives: driving revenue growth, investing where we can make a difference, rightsizing the organization and optimizing our cost. These initiatives are captured in Project Blossom. So what you can see from the next slide is that Project Blossom is about bringing our Peripherals business back to growth. I will share a little bit more in detail. There are 2 dimensions in Project Blossom. We have identified 4 growth initiatives and rightsizing exercise. On the growth side, we are building a stronger B2B office business on the back of a strong market share in corded keyboards, starting in Germany and the U.S. We will further strengthen our e-commerce model for both office and gaming with focus on the U.S. and Western Europe. In APAC, with China as our dominant market, we will accelerate growth in gaming keyboards with a stronger China-for-China approach. And finally, our Security & Industry input devices are from now on a strategic priority for Cherry peripherals, and I will elaborate more on that in the slide after next. On the rightsizing side, we are targeting at least an EUR 8 million reduction in nonmaterial costs in the Peripherals and Component business on an annualized basis. This EUR 8 million comes on top of the EUR 10 million OpEx savings we announced for 2026 versus 2025 at our last earnings call in March. And this will give us a clear path to EBIT breakeven in 2027. So starting from the 2025 base and by the disciplined execution of Project Blossom, we see a path to revenue growth across office, gaming and security with the overall Peripherals business growing to well above EUR 100 million by 2030. These numbers are targets and not guarantees, but they are based on a concrete bottom-up plan, and our Q1 performance gives us the confidence that we're moving into the right direction. A little bit more in detail on the Security & Industry business, as I shared before. We see this the Security & Industry business, the security keyboards as an important growth opportunity for Cherry. This category fits very well with our in-house capabilities and with current market trends. For this category, we moved to a more B2B -- direct B2B approach, focusing on selected high-value customers, both the corporate end user as well as the value-added reseller. At the same time, we are building partnerships with key players where we already have relationship with, such as the German military, the U.S. Department of Defense and Deutsche Telekom. We're also launching new products, including the next generation of security keyboards. Next to this, we are exploring more use cases, for example, in defense and other high-security environments. Looking ahead, we see a strong potential here. We can combine our hardware with new technologies such as keystroke biometrics and passwordless solutions. This also opens the door for subscription-based revenue. The market trends do support this opportunity. The defense spending is increasing and there's more focus on secure European solutions. And for now, keyboards are being seen more and more as a potential input security risk. So overall, and based on our knowledge and in-house technology, we are well positioned to grow in this segment. Then on the management board. We have announced today that after more than 4 years, our COO, Udo Streller, will leave the company at the end of June. Under Udo's leadership, the Auerbach site was successfully developed into a modern European hub for development and logistics. During his time with Cherry, he also played an important role in scaling the company's operational structure and capabilities. And we thank Udo for that. With this, we will now return to a 2-member management Board structure. Both Jurjen and I will cover the scope of operational responsibilities supported by a strong functional leadership team. This leaner structure is better aligned with the size of the company we are building, and it will contribute to faster and clearer decision-making. At Supervisory Board level, we are proposing a rightsizing to 4 members at the upcoming EGM on May 22. 3 of the current members will step down, and Stephen Greenberg will continue to serve through this term. This adjustment reduces cost and creates a leaner and more efficient governance structure, better aligned with the current size and the scale of the company. So let me close with the summary. The new scalable business model for Peripherals will be leaner, focused on core input devices with a simplified portfolio, faster decision-making and less complexity. Our trading in the first quarter of 2026 was in line with our underlying expectations, and the second quarter so far shows solid performance in Peripherals and a strong momentum in Digital Health. The M&A process is ongoing. And as mentioned, we expect that we will be in line with the early announced time line. Given this, given the ongoing M&A process, at this moment, we do not believe that we can share a reliable outlook for the rest of the year at this stage. The expectation is that we can share this in more detail next quarter. So overall, our priorities are clear. Implementation of the Blossom project, executing the financial steps and restoring the confidence in Cherry as a company. With that, I hand over to Nicole.

Thank you, Rogier. [Operator Instructions] So the first question comes from Bastian Brach, Montega.

First question for me is on the DH&S segment, which had quite a good revenue increase year-on-year. Could you outline the drivers for that development? Was it exceptionally strong hardware demand or any other drivers you would highlight?

So the question was about the growth of the Digital Health business?

Yes.

I think as I mentioned, we see the growth coming from the e-health terminals. So the growth versus Q1 last year was significant. As I said, it was more than tripled. If you compare to Q4 2025, we grew 47% in the terminal business. Also on the back of the delayed rollout of the 32,000 health care facilities in Germany, that still have to be connected. So part of the rollout that was expected in 2025 moved into 2026. So that is the most -- the largest part of the growth that we have realized.

Okay. So any outlook for the quarters ahead? Is it a sustainable level? Or will it come down because there were some extra effect in Q1?

Yes. No, what I mentioned is that we had a strong Q1, right? And what we see right now up until we are now in the first week of May, we see that the performance is still more than solid. I think as we said that solid performance of Peripherals, but we continue on a good growth level with digital health. So we expect also a good Q2.

Okay. My second question is on the cost side. First of all, the central costs increased compared to previous years despite the cost management. So what drove that? And also, what are the costs you expect for the Project Blossom?

Can you hear me well?

Yes. Yes.

So it's a good question, and I found that as well, but it basically has to do with we're allocating costs out of the central section to, let's say, the operational units. And because especially in the Peripherals domain, the revenue was so much lower, also less costs were allocated to the Peripherals domain. So the EBITDA picture that I showed per segment is a little bit skewed, and that's why I focus on total cost reduction, which was the EUR 4.6 million on a reported basis and EUR 5.5 million on an adjusted basis. So the comparison on a segment-by-segment way in terms of cost doesn't make a lot of sense. And therefore, we're focusing on the cost for the total company as a whole.

Okay. And the costs for Project Blossom for like rightsizing the company, et cetera, do you have any indications on that?

We're still, of course, contemplating the cost effects to that. I think it's a two-edged sword to be honest. So one is ensuring that we have the right funds available to invest and to grow. And the second is money that is needed for rightsizing. We're in the course of going through all of that in granular detail. So I cannot share this at this point in time. But again, it's a two-edged sword. So one is making sure that we have the right capabilities and competencies and also resources in place to invest for growth. At the same time, optimizing cost is a term that I prefer over rightsizing, but that certainly will also drive investments. But at this point in time, it's not exactly [indiscernible] how much.

Okay. And then my last question, and I'm afraid you won't answer that. But on the potential sale of a business unit, are there any more details you can share? It seems from your presentation that it's more centered around the DH&S segment. But yes, any comments on potential buyers or yes, anything you can share there?

No, I can confirm your fear. So indeed, we will not further elaborate on it. I think you should, for the time being, satisfy yourself with the remarks that we also make in the presentation. We believe that we are well on track on the time lines that we define.

I will wait until the Q2 numbers.

Thank you, Bastian.

Thank you, Bastian. The next question comes from Felix Ellmann, Warburg/MPC Bank.

Can you hear me?