Innio N.V. (INIO) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the INNIO N.V. Second Quarter 2026 Results Conference Call and Webcast. [Operator Instructions] After the speaker's presentation, there will be question and answer session. [Operator Instructions] Please be advised this conference is being recorded. I would now like to hand the conference over to your first speaker today, Timothy Furcillo, Head of IR. Please go ahead.

Hello, everyone, and welcome to INNIO's Second Quarter 2026 Earnings Call, our first as a publicly listed company. My name is Timothy Furcillo, Vice President of Investor Relations at INNIO, and I'm joined by our CEO, Olaf Berlien, our CFO, Dennis Schulze. With us in the room are also Martin Weidner, leading global sales for data centers and Power Solutions at INNIO and Andreas Eberhart, responsible for Product Management and Marketing. Let's have a quick look at today's agenda. First, Olaf and Dennis will present the second quarter results, then you'll have approximately 30 minutes for your questions. Please note that this conference call is being recorded today, July 28, 2026. Our conference call will include both GAAP and non-GAAP financial results. Reconciliations of our non-GAAP measures to the most directly comparable GAAP measures can be found in our Form 10-Q for the quiet period ended June 30, 2026, our quarterly earnings release and the corresponding presentation slides, all of which are available on our IR website. We will be making forward-looking statements about our business, market position and future performance. These statements are made only as of today's date. We do not undertake any obligation to update these statements, except as may be required by law. These statements involve known and unknown risks and uncertainties that may cause our actual results to differ materially from those anticipated or implied today. For information on risks and uncertainties, please refer to our SEC filings. Unless I was specified, all comparisons refer to Q2 2026 versus Q2 2025. And with that, I'll hand it over to Olaf.

Thank you, Tim. Hello, everyone, and thank you for joining us today. It's great to have you on the call. Time has flown by since our IPO, and we are very excited to continue our success or now as a listed company. Since our IPO, INNIO has made substantial progress while continuing to build momentum across the business. In Q2, we delivered record equipment order intake of $2.3 billion, up 36% year-over-year. Revenue increased 42% and to $938 million. Adjusted EBITDA grew 20% to $172 million. Given this strong performance and our record backlog we are introducing full year 2026 guidance today. Dennis will provide you further details later. Our order equipment backlog reached direct $6.6 billion at quarter end. With capacity expansion progressing as planned, we are well positioned to deliver continued profitable growth. As this is our first earnings call, some of you may not yet be familiar with IO. I therefore, begin with a brief introduction of the company before walking you through our key highlights for the quarter. So let me begin with who we are, what we do and what is driving the growing demand we see from customers. In delivers decentralized power solutions for critical infrastructure and the AI industry. In 2025, INNIO generated $2.6 billion in revenue, reflecting continued growth across our businesses, with adjusted EBITDA of $549 million profitability was also attractive. Now please look at the top of this slide, where you can see our leading brands. On the left, in bar, a market leader in power generation with long heritage, on the right, Waukesha, a key player in the compression market. On the low half of the slide, you can see how we operate business through 2 segments, equipment and services. Equipment on the lower left represents 52% of 25% revenue and it's our growth engine. Across our 3 business lines, Data Center, Power Solutions and Compression, we serve a diverse range of end customers. Strong data center momentum is reflected in 59% of 2025 equipment order intake. Power Solutions represent 35% of the equipment order intake in '25 has been our core business for decades. We serve critical infrastructure utility industrial customers and municipalities worldwide. As coal fired generation continues to retire and renewal penetration increases, our Power Solutions business is growing. It is supported by continued demand for Pika plants that help maintain grid stability. At the same time, we are seeing continued momentum of our biogas solutions, especially in Germany, with growing potential in the United States. Services on the lower right, accounted for 48% of '25 revenue. It is built on a continuously growing installed base fueled by the equipment business. Each segment has a long track record of strong profitability. With that, let's move to Page #7. Here you can see 1 of the key strengths of the INNIO business model, our service flywheel. Every engine we sell enters and an installed base that installed base generates high-margin recurring services revenue through long-term service agreements for a large portion of our fleet. At end of in-use installed base stood at approximately 44 gigawatts globally. The fleet requires regular maintenance, part replacement and periodic overhauls with its operational life. This is resulting in a potentially long duration nondiscretionary revenue stream that we compound at fleet growth. The dynamic acceleration of our flywheel is clearly visible in our numbers. On the left side, you can see the significant growth of our equipment order intake, which increased from $3.9 billion in '25 million to $6.6 billion for the last 12 months. This impressive order momentum has driven our backlog to a record $6.6 billion. The Equipment Order Backlog is providing excellent visibility into the future revenue growth and supporting continued expansion in our installed fleet. At the same time, we are meaningfully expanding our capacity to support future growth. As additional capacity comes online, we expect to release further production slots providing further runway for the order growth. As a result, we remain confident in our ability to grow backlog through '27 and beyond. On the right side, you see our expanding installed base continues to translate into profitable recurring revenue. Service revenue reached $1.4 billion, for the last 12 months ended in Q2 '26 with an adjusted segment EBITDA margin of 30% for the same period. With demand continue to excelute an important question is, we are more and more customers choosing gas engine solutions. Let's move on Page 8. As electricity demand grows and grid constraints become more acute, customers are increasingly looking for practical ways to secure power and support growth behind the meter gas engines deliver both. Take a look at the left side on our slide, an actual [indiscernible] NEF analysis shows gas engines can offer the lowest life cost of energy among -- behind the meter technologies. And even the grid access becomes available. The operating cost of an installed gas engine can remain below the cost of the grid power, supporting our belief that behind the meter solutions are not the bridge solution but are here to stay. As shown on the right side, the business becomes even more compelling when you consider recent market developments. Last week, the White House announced that nearly all utilities as well as several colocation companies signed the ratepayer protection pledge. We believe this is a sign of growing support for behind the meter power. Their participation follows an earlier commitment made by leading global hyperscalers. In many ways, the pledge formalizes what we are already seeing in the market. Data center operators and utilities increasingly recognize this. Securing dedicated on-site power can be fast for reliable and cost-effective path to support growing AI demand. This trend is further supported by infrastructure bottlenecks across the power ecosystem. And this is where no is uniquely positioned. Our platform is built around the [indiscernible] 6 engine family, including the J-624.This engine was recently recognized by semi analysis as the industry most consequential engine. It is combining outstanding performance with highly attractive economics. Our competitive advantage comes down to 2 factors: performance and modularity. The [indiscernible] Type 6 platform delivers industry-leading power density, fast response times and higher rotational inertia. With this, it is easier suited for the demanding and dynamic load profiles of AI-driven data centers. The modular design allows customers to scale rapidly, reduce costs and accelerate time to power. When a 1 gigawatt of data center capacity can support more than $10 billion in revenue every month counts. Speed to power becomes a key competitive advantage. Let me show you how our strong market position translates into our business performance. Just look at our second quarter highlights on Page 10. Overall, it was an excellent quarter for EU. First, we delivered very strong order intake, supported by a major new customer win and strong demand across our end markets. Equipment order intake increased 316% year-over-year to $2.3 billion. Second, revenue growth continues to accelerate. Group revenue increased 42% year-over-year, reflecting high customer demand and ongoing execution. Third, we continue to grow profitable while investing for the future. We expanded capacity to support increasing demand, at the same time, adjusted EBITDA increased 20% year-over-year to $172 million, demonstrating strength and resilience of our business model. Taken together, these results highlight the strength of our market position and our execution capabilities. Dennis will go into details later. But let me provide some color on the order activity we saw during the quarter. On the next Page #11. The key message is that demand remains strong, broad-based and diversified. Starting on the left, order intake in Q2 26 reached record levels, driven by continued data center demand. We saw follow-on orders from hyperscaler customers and colocation providers as they continue to execute phase data center build-outs. This is particularly encouraging as repeat orders validate our technology and execution capabilities. Combining with the composition of our backlog, they further support our view the structural demand outlook for data center power remains highly durable. While data centers continue to be a significant growth driver, demand was not limited to the market. Importantly, our growth remains diversified. As illustrated on the right, no single customer represents an outsized share of our order book. Looking ahead, we see additional customers entering our top customer profile. The pattern is clear. The customer base continues to broaden providing a healthy balance across the portfolio. Before I hand over to Dennis, please let me show you how -- in is helping power the next generation of AI-driven growth. Please move to Page #12. The highlight. This quarter was a 1.1 gigawatt order for mega scale data center customer, 1 of the largest orders in EU's history. We outlined in today's release, more than 200 GenmaJ624 engines are expected to provide resilient scale behind the meter prime power. This order is powerful approved by our technology and our ability to execute at scale. It is further reinforcing EU's position as a key enabler of AI infrastructure with a diversified and growing customer base. And the momentum is clearly reflected in our results. With that, let me hand over to Dennis to walk through the financials.

Thank you, and hello, everybody, from my side as well. It's a great pleasure to present INNIO's financial results to you for the first time as a public company. I will take you through our second quarter performance the visibility we have on the business ahead, our capacity expansion, and at the end, our outlook for the full year. Let me start with the 4 messages of this quarter. First, demand is accelerating across all of our business lines. Second quarter equipment order intake was up more than 300% year-over-year. Second, we are delivering strong top line growth in equipment and services as we execute on our backlog and control our supply chain and operations against the demanding growth plan. Third, the success of our multiyear capacity expansion plan across the U.S. and Europe is already visible today as we continue to increase our output. The expansion is financed from our own operating cash flows. And fourth, we are initiating full year 2016 guidance with adjusted EBITDA of $720 million to $740 million, an increase of 30% versus 25%. In summary, we are pleased with our second quarter performance. Accelerating demand and disciplined execution both reinforce our confidence in our full year guidance and our midterm ambition. Let me now walk you through the details, starting with the financial snapshot on the next slide. One table, 5 lines. and each line tells the same story of accelerating momentum. Starting at the top with equipment order intake, $2.3 billion in the second quarter, up 36% year-over-year. And I would like to highlight 1 number in particular, with $3.9 billion of order intake in the first 6 months, we have already booked more orders in the first half of '26 than in the entire year of '25. Our equipment book-to-bill stands at 4.4% for the first 6 months. Demand is strong, and our growing capacity allows us to convert the demand into firm orders. Second line, equipment order backlog, $6.6 billion, up 279% year-over-year. This backlog provides multiyear visibility for our equipment business. And because of our service flywheel that Olaf described earlier, we believe it can lock in decades of high-margin services revenue on top. The growth we are seeing in equipment today translates into our services business of tomorrow. Third line, total revenue, $938 million in the quarter, up 42% year-over-year. Equipment revenue growth shows that we are executing successfully against our order book, while services continue to grow on the back of our expanding installed base and pricing. Fourth line, adjusted EBITDA, $172 million, up 20% year-over-year. Here, I would like to spend some time on the EBITDA margin. which is notably below prior year. Consistent with our expectations and communication in the past, this is driven by a few deliberate factors. The natural mix shift toward equipment based on our order intake, some changes in product scope with a higher share of containerized solutions and front-loaded investments and ramp-up costs related to our capacity expansion. Margin is in line with Q1 '26 and ahead of our planned path for the year. Based on operating leverage and pricing dynamics in our backlog, we are confident to deliver on our full year guidance. Fifth line, free cash flow. $205 million in the quarter, up 352% year-over-year, fueled by strong operating cash flows. As we pointed out in the past, Inn's business model is supported by a production cycle in which customer down payments keep equipment manufacturing cash positive from order to commissioning. Since Ola touched on the Q2 order dynamics before, let me give you some color on the overall backlog and visibility. Combining our equipment order backlog with our slot reservations, we have more than 15 gigawatts of committed business as of Q2 '26. This is more than 4x the power we delivered over the last 12 months. When we say slot reservations, these are production flood commitments. They are nontradable and they typically carry a nonrefundable down payment. We are particularly excited about this metric for 3 reasons. First, approximately 64% of the more than 15 gigawatts relates to behind the meter data center solutions. And with data center, around 94% relates to prime power. The substantial majority of our data center business is prime power. We believe in new engines are solidifying reputations as the power generation technology of choice when it comes to powering data centering in behind the meter setting. Second, the expected service intensity embedded in this backlog is substantially above the average of our existing installed base. Our data center customers rely on our engines as the primary source and run these assets hard. In other words, we believe every megawatt we install from this backlog carries more service content over its life than our historical fleet average, raising the long-term earnings power of the flywheel. And third, quality. The pricing on our recent order bookings shows a positive margin trend compared to our historical average. So this is not growth at any price. As the backlog grows, we expect the embedded profitability to go with it. The takeaway is simple. More than 15 gigawatts of committed business gives us multiyear revenue visibility and feeds growing, higher intensity service base and confidence in our long-term ambitions. This demand raises an obvious question. Can we build it? The answer is yes. Our self-funded capacity expansion is well underway giving us the confidence to continue driving order intake and expanding our backlog. Importantly, we are enabling this expansion through debottlenecking and doubling down on our existing facilities, a brownfield approach, not greenfield, which we believe meaningfully reduces execution risk. Let me make this more tangible with a few numbers. We are on our way to roughly double our output in the coming years and to approximately triple our total production capacity by 2030 from 3.5 gigawatts per year in '25 to roughly 10 gigawatts per year. We feel very good about our progress today. as we are ramping our production output with gigawatts delivered in Q2 already at 1.3x of prior year. As new capacity comes online, we expect to release incremental production slots and each 1 of these can convert directly into additional order intake, given demand has recently been exceeding our ability to take orders. Where is this happening? First, at our [indiscernible] Campus in Austria. We are constructing a new state-of-the-art assembly line, which exists with debottlenecking the existing lines and can significantly increase throughput and for our data center products. In parallel, we are investing substantially in additional machining capacity, including our new site in how just a few minutes from [indiscernible]. Second, in the U.S. our new sites in Trenton, New Jersey and Waller, Texas are dedicated to containerization and packaging. In addition to increasing capacity, these sites offer proximity to key suppliers and customers, thereby shortening lead times and reducing logistics costs. And third in [indiscernible], Wisconsin and well earned Ontario. We continue to expand machining and assembling capabilities driving another step change in capacity. Two aspects about our growth plan are important to understand. The expansion is financed from our own operating cash flows, supported by a production cycle in the customers' down payments, keep equipment manufacturing cash positive from order to commissioning. Secondly, our investment yield attractive ROIs and paybacks, which means that our substantial backlog and slot reservations, visibility can substantially derisk our growth investments. Now let's take a deeper look into our Q2 equipment order intake. Two charts, one message. On the left, the composition of our order intake. The growth is broad-based. In the second quarter, data center contributed close to $1.5 billion, Power Solutions $546 million and Compression $281 million. Each business line growing strongly year-over-year. And all of them well aligned with the market trends, Olaf outlined earlier. So while data centers are the largest driver, this order momentum is more than a data center story. Our equipment book-to-bill stands at 4.4% for the first 6 months. On the right, our equipment order backlog going from $3.6 billion end of '25 million to $6.6 billion as of June 30, '26, representing an 83% increase just in H1 '26. Compared to prior year's quarter, the increase is even significantly higher at 279% with sequential growth in every single quarter. As mentioned before, we generally observed the new orders carry accretive pricing and higher service intensity compared to our average past business. Our growing backlog and book-to-bill ratio shows the continuing acceleration of our business with increasing visibility for the years ahead. Our proactive investments and flexible supply chain are already delivering strong top line growth against this demand. At the same time, and as we communicated in the past, we continue to invest, which is temporarily reflected in our relative margins. On the left, total revenue, $938 million in the quarter, up 42% year-over-year with attractive growth on both equipment, up 16% and services up 21%. For this first half, revenues reached $1.6 billion, up 39%. On the right, adjusted segment EBITDA 188 million, up 24% year-over-year at a 20% segment margin. I commented on the drivers of the temporary margin compression earlier in this presentation. As mentioned, this development is in line with our expectations and support our full year guidance and continued margin improvement. I'm now going to step through the segments on this and the following page. Equipment revenue reached $569 million in the quarter, up 61% year-over-year. We are delivering against our order book, which includes large-scale data center projects. In Q2 '26, data center revenue nearly doubled to $232 million. Power Solutions grew to $274 million and compression contributed $63 million. This growth across all business lines demonstrates the execution strength of our teams, our production sites and our supply chain. On profitability, the segment margin came in at 14% compared to 19% in the prior year quarter. This reflects the self-funded growth investments that are enabling the substantial increase in order intake you saw earlier as well as the increase in order scope. This expanded scope for the early data center product was priced with a lower average margin than our core business. Two points that are important here. First, the Equipment segment margin already recovered meaningfully from the first quarter. And secondly, we are expecting to continue to grow equipment segment margins to high teens in Q4 and based on operating leverage and backlog pricing dynamics. Turning to services. Our quarterly trading nicely shows that our flywheel based business model delivers our existing extolled base generates growth at attractive margins. Services revenue grew 27% year-over-year to $368 million and 21% in for the first half of the year. As you will recall, our services are nondiscretionary recurring businesses based on wear parts, overhauls and upgrades. With a healthy share of long-term service contracts, our installed base gives -- in a stable earnings foundation which compounds over time. For the quarter, Services adjusted segment EBITDA margin came in at 30%. Similar to equipment, we made temporary growth-related investments in part capacity and in our service force. -- which were largely mitigated by margin accretive mix of parts versus labor. For the first half, the service margin stands at 31%. We showed you earlier how our equipment adjusted EBITDA generally carries 2.5x life cycle services adjusted EBITDA. Based on everything we see in our backlog and order pipeline, we feel confident to deliver or improve on this relationship for our business. This brings me to our full year guidance, we are initiating today for fiscal year '26. On revenue, we expect $3.8 billion to $3.9 billion for the full year, growth of approximately 46% at the midpoint versus 25. Within that, we expect the mix to continue shifting towards equipment at around 65% of revenue as we deliver our book to business in line with available capacity. Revenue growth is expected to further accelerate in the second half. On profitability, we expect adjusted EBITDA to be $720 million to $740 million. an increase of roughly 1/3 versus the $549 million we delivered in '25 at a group margin of approximately 19%. To help you with the port phasing, we expect the fourth quarter to be stronger than the third, driven by shipment cadence against the backlog and the ramp-up of our added capacity. Adjusted EBITDA margins are expected to increase as the equipment business stands to benefit from improved operating leverage and the conversion of our margin improving backlog taking Equipment segment adjusted EBITDA margins to an expected exit rate in the high teens by the year-end. In summary, accelerating revenue growth combined with an improving margin profile delivered by a self-funded growth model. And with that, back to you, Olaf.

Thank you, Dennis. Let me close by summarizing the key takeaways. Please turn to Page 24. First, demand is strong and broad-based across our business. driven by the long-term trends of AI, data centers and decentralized power generation, providing high visibility into our revenue growth through 2030 and beyond. Second, every engine we deliver today expand our installed base and fuels our long-term high-margin service business. Third, -- to capture this opportunity, we continue to invest in our people, technology and capacity. We are working towards strengthening our technology leadership, we are expanding capacity in a target and returns-focused manner and building the scale of our North American services offering to support future growth. And finally, none of our success would be possible without the outstanding in your team. I would like to thank our more than 5,000 employees around the world for the dedication, commitment and hard work. The opportunities ahead of us are significant, and we remain focused on creating long-term value for our stakeholders. And with that, I'll hand over to Tim.

Before we open the line, I ask everyone to ask just 1 question so we can get as many people as possible. Operator, please open the line for questions.

[Operator Instructions] And now we're going to take our first question, and it comes to the line of David Arcaro from Morgan Stanley.

And congratulations on the first quarter here being public. I was wondering if you could comment on maybe first on the pricing trends that you're seeing, especially on new slot reservations and just generally pricing trends in the market for engines?

Is it your first question or you would like to have another question?

Let's see, I guess that was my first question. And if I were to throw another 1 in there, I guess I was also curious if -- when you consider the slot reservations that you have, how far out are you reserved at this point? Is there any capacity available in 2028?

Okay. Thanks, David. Yes. Nice to hear you again. Hope to see you New York. Coming to your first question, the pricing trend is clearly still strong. That means the demand is high. If the demand is high and delivery is limited, you are always in a good position to do something on prices. So I do not see any signals going down on price trend. And on the delivery time, we are talking about today we live on '29 and '30 and we are more or less sold out for '26, '27. And if customers are asking us, we have many projects, they are talking about '30 and '31. So for example, the project, what we announced this morning is delivery till '31.

Any additionals?

Yes. And maybe just to add on the slot preservations because you asked how long we are sold out and that wants to be we secure that the customers are buying from us. We don't allow to treat the slot reservation. So they are only dedicated to a single project. And as Olaf mentioned, the sought reservation reaches out now until 2030.

And the next question comes from the line of Joe Ritchie from Goldman Sachs.

And again, congratulations on your first public company earnings call. So I wanted to ask about the order trajectory. So clearly, the orders were robust this quarter. I know that orders can be lumpy I'm just curious, as you kind of take a look at your pipeline for the second half of the year, like maybe provide a little bit of color on what the pipeline looks like? And then for the 1 really large order that you booked in data centers this quarter, I was curious like what portion of the $1.5 billion that you booked this quarter from an order standpoint was that 1 large order?

Joe, yes, good question. Look, I think we have really remained very confident that our order backlog at the year-end to be higher than it is today. So looking ahead, continue to expect to see strength in the H2 given we see very environment, and we expect our order backlog to increase further. So there is no decline or weaknesses in the pipeline. So I'm looking now in the eyes of Martin and he is saying, "no, no, no. It really is very, very strong. And we are talking together about so many projects. So I don't see it. And maybe with the 1 gigawatt, would you like to add on this?

The portion of it is 1/3 definitely below 1/3, it's even below 30%. Some of the engines sold to this 1.1 gigawatt is containerized. So with more scope, some of it is for a Baarhouse installation, so with a little bit less scope. But this was just 1 very big deal. We had as well many, many other deals, bigger deals, smaller deals worldwide. And as Olaf said, the order robustness is fantastic, right? So we do have any requests for projects which we are not able to fulfill because of capacity. So I don't see at all that the market demand is going down for us, right?

And now we're going to take our next question. And the next question comes from line of Nicole DeBlase from Deutsche Bank.

I'll echo my congratulations on the first big quarterly results. So maybe first just on capacity expansion and update there, maybe double click on price you've made towards the plan that you laid out? And then with the orders being much better than expected and the really robust commentary on backlog and pipeline. I'm curious if 10 gigawatts is enough. And then second question on the 1.1 gigawatt data center order. I'm just curious if you see more ores of this magnitude in your pipeline?

Okay, Nicolas. Thanks for asking, Dennis speaking. Starting with the -- with your correctional capacity. I think overall, the capacity expansion is progressing until our scale up from 3.5 million base on our site in embark and then up to 10 based on further ramp-up from 28 onwards in washer is on track. We don't want and standing loss from today's perspective, and we are executing on plan and the project in both projects are actually fully on track. The 1 is delivering already right now. We are going to be ahead of 2.5% obviously this year and the other project in Waukesha is also on track. On your question, we gigawatts, this is something that we, as a management team, are reviewing on an ongoing basis on a quarter-by-quarter, month-by-month basis. From today's perspective, we are fully focused to execute on the 10 gigawatts, but we'll obviously care for you the twin over time and will take respective decisions on that one. On your second question, probably...

I can do it. The 1.1 gigawatt we just announced today, Look, maybe you have seen that we announced the [indiscernible] 1 with 1.25 gigawatts. It's a little bit a longer run project. So we have some of them. We just signed. And I think that's in the process as well that we are in with [indiscernible] a long-term contract, delivering engines type of. So there are many of these coming up. So there from my point of view, as a strong demand, and as Martin said, I would see any weakness size of gigawatt -- it's not the exception. It's now I would say, [indiscernible] common side.

Now we're going to take our next question. And the question comes from line of Amit Mehrotra from UBS.