Landis+Gyr Group AG (LAND) Earnings Call Transcript & Summary

Welcome to the Landis+Gyr Q1 2026 Trading Update. Please note that the call will be recorded. [Operator Instructions] I would now like to turn the call over to our host, Christian Waelti, Head of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, good evening, everyone. I'm Christian Waelti, Head of Investor Relations. I'm joined today by Peter Mainz, our CEO; and by Davinder Athwal, our CFO. As you know, earlier today, Landis+Gyr issued an ad hoc release and related presentation on the Q1 FY 2026 trading update, which are available on our website. This session will follow the structure of the presentation, so we encourage you to follow along. We'll conclude with Q&A, and the operator will provide further instructions and where you will be able to ask questions. Please take a moment to review the usual disclaimer on Slide 2 of the presentation. After this short introduction, I'd like to hand the floor over to our CEO, Peter Mainz.

Thank you, Christian. Good afternoon, and good evening, everyone. I'm here at our U.S. headquarters in Alpharetta with Davinder, our CFO, and we are pleased to provide you with an update on our first quarter performance. With that said, let's now start with a review of the key strategic developments over the past 3 months. Let's move to Slide 3. As you know, we held our Capital Markets Day in New York on June 1, where we presented our growth strategy and midterm value creation plan for the next phase of Landis+Gyr. Following the successful divestment of our EMEA business, we are now operating with a clear strategic focus and the structure that is better aligned with our core growth opportunities. As part of this, we introduced our new segment structure around Connected Platforms and Grid Intelligence. We believe this new structure enhances transparency for investors and improves operational focus across the business. Connected Platforms brings together our intelligence endpoints, secure grid communications and deployments and life cycle services, while grid intelligence includes our grid operations software, data and analytics and managed and advisory services. We have also put dedicated segment leadership in place with announcements forthcoming. This is an important step as we continue to sharpen accountability, execution and commercial focus across the organization. In parallel, preparations for U.S. listings are progressing well and internal readiness is essentially complete. As we have said before, we remain committed to maintaining our Swiss listing while also advancing our preparations for a U.S. listing to better align our capital markets presence with the majority of our operational business activity. And finally, the acceleration of our share buyback program through a fixed price offer underscores our commitment to returning value to shareholders following the successful closing of the EMEA transaction. I will come back to this in more detail later in the presentation. With that, let's move to Slide 4 and look at the highlights of the first quarter. Overall, business performance in Q1 '26 was in line with our expectations. In our first fiscal quarter, which is seasonally low historically, net revenue was down 6.8% year-over-year, primarily due to the timing of project deployments. At the same time, we continue to see pipeline activity at record levels, and our backlog remained very solid at USD 3.8 billion. Importantly, Grid Intelligence now represents around 47% of our backlog and backlog in this segment increased by 5.4% compared to June fiscal year 2025. This underlines the continuous momentum we see around grid edge solutions and the increasing relevance of software and services in our business mix. Our trailing 12-month book-to-bill ratio remained at 1x, which reflects continued demand across our core markets and supports our confidence in the business outlook. A key highlight of the quarter was our profitability performance. We achieved a record quarter adjusted gross margin of 37.4%, up a staggering 280 basis points year-over-year. This improvement reflects operational efficiencies as well as a favorable shift towards recurring software and services. Adjusted gross profit increased to USD 87 million compared to the prior year quarter despite the lower revenue base. Taken together, the quarter demonstrates that while revenue timing can vary from period to period, the underlying business remains resilient, our margin profile continues to improve and our pipeline remains exceptionally strong. Based on our Q1 performance, backlog visibility and current business momentum, we are reiterating our fiscal year 2026 guidance. I will now hand over to Davinder, who will take you through the financial performance in more detail.

Thanks, Peter, and good afternoon and good evening, everyone. I'll begin with our first quarter financial performance, starting with the order intake and backlog on Slide 5. Order intake for the quarter was $167 million compared to $171.7 million in the prior year period. While quarterly order patterns can vary, the underlying demand environment remains healthy and continues to track in line with our expectations. Our backlog remains one of the core strengths of the business. The majority is supported by long-term customer programs and contracted software and services, providing strong visibility into future revenue streams and reinforcing the quality of our backlog. Especially encouraging is the continued evolution of that backlog mix. Grid Intelligence backlog increased 5.4% compared to June 2025 and now represents approximately 47% of total backlog. This reflects growing customer investment in grid modernization, software, analytics and grid edge solutions, areas that support a higher quality and more profitable revenue mix over time. Our trailing 12-month book-to-bill ratio remained at 1x, while commercial activity and pipeline development continue at healthy levels. Overall, we remain confident in both the quality of our backlog and our ability to convert that backlog into revenue over the coming quarters. Turning now to revenue and margins on Slide 6. Revenue for the quarter was $232.3 million, a decline of 6.8% compared to the prior year. The decrease is primarily driven by the timing of customer deployments within Connected Platforms and was consistent with our expectations entering the year. More importantly, profitability improved significantly. Adjusted gross margin reached a record 37.4%, an increase of 280 basis points compared to the first fiscal quarter of 2025. This improvement reflects the same strategic drivers we have discussed previously, a more favorable mix, including a higher proportion of software and software-enabled services, continued operational efficiencies across our product portfolio and supply chain and disciplined execution across our customer programs. As a result, adjusted gross profit increased to $87 million, up 1% year-over-year despite lower revenue. While revenue timing affected the quarter, the underlying trajectory of the business remains consistent with our expectations. The first quarter highlights the continued improvement in the quality of our earnings and the operating leverage inherent in our business model. Turning now to our segment performance, beginning with Connected Platforms on Slide 7. Connected Platforms generated $116.5 million of order intake during the quarter, resulting in a trailing 12-month book-to-bill ratio of 1. This reflects continued customer demand for our products and services, combined with disciplined commercial execution. Revenue was $161.4 million, down 13.9% from the prior year period, reflecting the expected timing of project deployments and customer implementation schedules. While revenue was lower year-over-year, profitability improved materially. Adjusted gross margin increased 520 basis points to a record 34.3%. This improvement reflects ongoing operational efficiencies and disciplined execution across the portfolio. Our focus remains on converting backlog into revenue while continuing to drive profitable growth and margin expansion. Turning to Grid Intelligence on Slide 8. Grid Intelligence delivered another strong quarter. Order intake was $50.5 million, representing year-over-year growth of approximately 45%. Revenue was $70.9 million, an increase of 14.8% year-over-year. Growth was driven primarily by software and SaaS-related offerings, further advancing our transition toward a more recurring and higher-margin revenue profile. Adjusted gross margin remained strong at 44.7%, demonstrating the attractive economics of this portfolio and the value of our continued investment in software and analytics capabilities. Grid Intelligence continues to become a larger contributor to both growth and profitability while increasing the recurring revenue content of the business and improving the predictability and durability of our earnings. Turning now to guidance on Slide 9. Based on our first quarter performance, the strength of our backlog, our visibility into customer deployment schedules and the momentum we continue to see across the business, we are reiterating our fiscal year 2026 guidance. We continue to expect net revenue in the range of $1.075 billion to $1.125 billion. We also continue to expect adjusted EBITDA margin of between 14.5% and 15.5% of revenue. Overall, the first quarter reinforces our confidence in the underlying fundamentals of the business. The strength and quality of our backlog, continued commercial momentum and improving profitability support our outlook for the remainder of the year. That concludes my prepared remarks. Thank you for joining us today and for your continued interest in Landis+Gyr. I'll now hand it back over to Peter to discuss the share buyback plan. Peter, over to you.

Thank you, Davinder. Before we move on to Q&A, I'd like to provide a few more details on the acceleration of our share buyback program. Following the successful closing of the EMEA transaction, we remain committed to returning a total of USD 175 million of the proceeds to our shareholders. This is an important element of our capital allocation approach and reflects our confidence in the company's strategy, financial profile and long-term value creation potential. Under the current share buyback program, we have repurchased approximately 1.2 million of our own shares over the past 9 months, representing approximately 4.2% of our share capital for a total consideration of approximately USD 74 million or CHF 60 million. To accelerate the return of capital to shareholders, we intend to launch a fixed price offer for a total amount of up to CHF 50 million. The offer is expected to run over a 10-day offer period and the details of the offer, including the buyback notice are expected to be published on August 3, 2026. Following the completion of the fixed price offer, we intend to resume daily share repurchases to complete the remaining portion of the USD 175 million share buyback program. This accelerated buyback is fully aligned with the priorities we outlined at our Capital Markets Day, focusing the business, improving our financial profile, maintaining disciplined capital allocation and returning value to shareholders. This concludes my remarks. Thank you again for joining us today, and we are now happy to take your questions.

[Operator Instructions] Our first question today comes from Akash Gupta at JPMorgan.

I got a couple. The first one is on the phasing of quarterly revenue growth this year. If you look at the midpoint of your full year guidance, that would roughly imply 6% year-on-year sales decline and Q1 was minus 7%. So can you please help us how should we think about the phasing in coming quarter? And would there be a prospect of returning back to growth in Q4? That's question number one.

Thank you, Akash. You prefer us to respond to them one by one? I can take the first one. I think if you recall at the year-end results for '25, when we gave the guidance for this year, we articulated that in the fourth quarter, the ramp-up of one contract up in Canada will be at the pace that will match the revenues from a year ago. So that one we will see at the final quarter of the year. And if you think of the transition of the revenues through the year to get to the guidance you just mentioned, the first half from this year and the first half from last year, it's a pretty decent match on the pattern throughout the year to arrive at the full year numbers. And I think we disclosed that in the fourth quarter will be quite strong with the contract up in Canada deploying at the pace of the contract it is replacing.

And my follow-up is on the -- what you are hearing from your utility customers. I think you mentioned that your pipeline is at all-time high, but we also hear from utilities that they are seeing big demand for power gen from data center customers. And there are some concern that they may prioritize their CapEx on adding more powertrain capacity to accommodate these hyperscalers and other industrial customers that are asking for more power from grid. So yes, just curious what you are hearing from your utility customers? And what should we expect for pipeline and conversion from pipeline into orders in the course of 2026?

So a couple of things. The pipeline, and I think I articulated that already the last -- our last call is the record pipeline that we have seen. I haven't seen a pipeline of that magnitude since I've been in that business, and it keeps on trending upwards. And what we really like about the pipeline is that we saw the evolution of the pipeline consistently was trending to the Revelo to the grid edge offering that we brought to the market. And today, when we talk about the record pipeline that we see, it's 100% made up on the electric side from customers and utilities transitioning from AMI 1.0 to AMI 2.0 to grid edge. So we really see the ROI that the utilities expect to be one that makes them go and purchase this offering. So we see the pipeline continue to grow, and we're really excited how quickly it grew, and it's really all AMI 1.0 to AMI 2.0 transition. There is nothing out there anymore that was greenfield. So we like that one a lot. And then obviously, there is always this discussion on where does the money go. We are closely aligned with the distribution spending of utilities. That's still the part. That's the portion that continues to grow extremely nicely. And if you follow the U.S. utility industry over the past decade, there was a substantial amount of disaggregation of integrated utilities and usually generation entities are not the ones we talk to or transition entities. We usually end up talking to distribution entity where -- entities, where all they do is focus on distribution of electricity in the most resilient, most affordable, most efficient way. And that's where the majority of our offering is targeted to. So it's probably an overall discussion in the utility industry, but not for our customer base because predominantly, they serve the distribution aspect of the utility operations in the U.S.

[Operator Instructions] Our next question today comes from Louis Billon at Baader Europe.

So my first question is on the Grid Intelligence. Could you give us more details on the reasons for this decline in gross margin year-on-year?

Louis, this is Davinder. I can take that one. Yes, happy to respond, and thanks for the question. So I think it's really just a quarterly impact, right? So given that 1 quarter is not really representative of the full year, it's just a mix of what's in that revenue for the quarter that we're seeing it. So we don't expect that to continue. If you look at the full year guidance that we're reiterating, it kind of like unwinds itself over the course of the year.