Jenoptik AG (JEN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the results of the first 9 months 2025. [Operator Instructions] Let me now turn the floor over to your host, Dr. Stefan Traeger.

Thank you very much, and a very warm welcome to our Q3 earnings call. Our third quarter has been a quarter of light and shadows as so many other companies report. We have some specialties that are worthwhile pointing out and throughout the call, we are going to do that. With me today is, as usual, Prisca Havranek-Kosicek, our CFO. And I'll give some sort of color upfront, and then Prisca is going to lead us through the numbers. As I said, first quarter, a bit of a quarter of light and shadows. Revenue is down from prior year figures. If you take the third quarter 2025 versus third quarter 2024, our net sales are down by around minus 7%. And as a result, EBITDA or operating profit is also down versus prior year. That goes for the quarter as well as for the full year, year-to-date. On the other hand though, free cash flow is very, very good. We have had a very good free cash flow, significantly improved by -- versus prior year. And probably even more importantly, our order intake pattern has developed as expected, but yes, very nicely. Our order intake in the third quarter is almost 14% higher than in the second quarter. And then the order intake in the third quarter 2025 is 18% higher than in the third quarter of 2024. And as we always expected, order intake will strengthen in the second half of the year. And we do see that pattern emerging, which is great, and obviously helps us going forward. Nevertheless, we have implemented a program to reduce personnel and material expenses. I guess that's just prudent. We all do that. That's -- yes, just good management practice. We expect to see a high single-digit number in terms of extra cost, onetime effects in our P&L this year. And let me just address that straight away in our guidance that we are going to specify a bit more going forward, those numbers, the onetime effect, the special costs for structural cost takeout is already included. So that's after -- that's the number that we are going to specify later after those special costs. Overall, we do remain focused on our main growth opportunities. I'm very convinced that we have good opportunities to further growth even this year is challenging for all of us. But given, not at least our order intake pattern in the third quarter, but overall, the macro trends that we have, we're very convinced that we will see further growth in the years to come. There is ever more AI-driven demand in semiconductors. There is optical communications for data centers, for defense applications, in particular at the moment in Europe. We do see success in expanding our SMS business, in particular, in the United States. And at some point, and I'm really convinced about that, AR/VR applications are going to see an inflection point. It's hard to say exactly when, but there will be smarter ways of human and data interaction than just our phones in the future. So if you take it all together, there's a bit of a mixed picture that we are going to report in detail now, a bit of disappointment in terms of net sales due to the time it takes for us always to convert orders into sales. We have a relatively long lead time with our relatively complex products. And as a result of that, operating profit for now is not where it should be, but it's more than just a bit of light at the end of the tunnel. There's a pretty strong order intake pattern. And again, Q3 this year, very strong order intake, pointing to growth in future, and we're committed to that. Again, the restructuring project and program that we have implemented is ongoing. We had some of the numbers there already in our third quarter, but predominantly, the cost will become in the first -- in the fourth quarter and are already included in our forecast, which we are going to specify at the end of the call. And with that said, I'll hand over to Prisca to guide us and lead us through the numbers in more detail. Prisca, over to you.

Thank you, Stefan, and good morning to all of you on the call also from my side. As always, I would like to now cover our performance in the first 3 quarters of 2025 in greater detail, starting with order intake on Page 6. Looking at order intake on group level, we are pleased to report that overall demand has continued to pick up over the course of the year, with orders now in the third quarter being some 50% higher compared to the first quarter figure. And as Stefan has mentioned, approximately 18% year-on-year. If we take the first 3 quarters together, order intake was at EUR 777 million, and that's only marginally below prior year level. However, dynamics have been very different between our 4 strategic business units. So starting with Semiconductor & Advanced Manufacturing, as you know, development has been impacted by certain supply chain fluctuations in our lithography business as well as an order cancellation in Q1, as we highlighted it on our previous call. Thus, order intake for the first 9 months period was down by around 18% year-on-year. From all we can judge, we believe this supply chain or inventory impact, if you will, was most pronounced in Q1. On the inspection side, however, demand from our key customers remain strong, including in Q3. Turning to our biophotonics business. Order intake has been very strong for the first 9 months and particularly in the third quarter. While we saw positive momentum in both life sciences and medtech applications, order dynamics in our optical defense products was particularly strong. So with overall biophotonics order intake are up by around 34% year-on-year, which, of course, is very good. I would like to also note that there is a certain lumpiness in the order pattern of this business, particularly in the defense-related part. So let me explain. While major orders in this area were recognized last year in the fourth quarter, we saw them this year in Q3 already. Therefore, we currently expect some sort of normalization for the fourth quarter. Moving on to metrology. Our Metrology & Production Solutions business as well as for Smart Mobility Solutions, order intake was also strong overall, up at high single-digit rates, with MPS benefiting from higher orders, especially in the optical test and measurement arena. As a result of all this, our book-to-bill ratio on a group level returned to above 1 or 1.03 to be precise, and reached 1.2 when just looking at the third quarter. Our order backlog reduced slightly compared to prior year-end to around EUR 659 million. We anticipate turning approximately 35% to 40% of this backlog into revenues this year '25. Now please follow me on to Page 7. So revenue in the first 9 months declined, as Stefan has already mentioned, by close to 8% year-on-year to around EUR 753 million. This reflects generally weaker order intake trends at the beginning of the year. We think we've talked about that, especially in the semi space. It also includes about 1 percentage point to 100 bps negative impact from FX fluctuations, especially relating to the euro-U.S. dollar exchange rate. Now if we look into the businesses, with regards to the semi business, revenue was down 15% year-on-year. This was a result of what we already discussed several times in earlier calls, meaning softer demand in the lithography business, which, as you know, makes up for a big chunk of our business. On the contrary, however, revenue with customers in the semi inspection area developed very well in the first 3 quarters. Now looking at biophotonics. Here, the revenue was up by 13%, driven by a strong demand performance in our defense business as well in our medtech business. For Metrology & Production Solutions, revenue development is lagging a bit behind the order intake dynamics that we just discussed before. So revenue overall was down by around 11% in the first 3 quarters of the year, due, on the one hand, to the unchanged difficult market environment that we are facing in automotive. On the other hand, influenced by some revenue shift into the fourth quarter. Now finally, revenue of our Smart Mobility Solutions business was up almost 14% in the January to September time frame, particularly as our efforts in the important U.S. market are gaining traction, in addition to some good momentum in the Middle East Africa region. Before moving to profits, I would like to also note that negative FX impact on revenues in the fourth quarter are expected to represent more of a headwind compared to what we have seen in the January to September time frame. Moving on to profits on Page 8. As you can see on the left hand of the slide, the group EBITDA reached almost EUR 132 million, down by around 18% compared to last year. Absolute EBITDA as well as EBITDA margins improved sequentially every quarter this year. However, for the first 2 quarters in total, our EBITDA margin contracted by around 220 bps year-on-year, including an about 40 bps impact relating to the onetime move costs to our new set interest, as you know, in the first quarter. On business unit level, influenced by the just mentioned one-off costs as well as lower utilization and product mix effect, EBITDA in our semi business unit dropped by almost 30% year-on-year. However, I'm pleased to report that while third quarter EBITDA margin in semi was still down somewhat year-on-year on the lower revenues, but it was also at almost 28% at a very good level in our view. In our biophotonics business, strong top line growth drove better utilization of our capacity. In combination with positive product mix effects, EBITDA margin substantially improved from 10.3% to 21.3%. As I've mentioned before, we continue to believe that this business is currently shipping a bit above normal profitability level. When looking at our Metrology & Production Solutions business, lower overall revenues impacted profitability with lower fixed cost absorption. As said before, considering our order intake and also our order backlog, we expect revenue development to improve in the fourth quarter. And as a result, we also believe that margins will move back to better trajectory. Finally, for our Smart Mobility business, we saw a very good margin improvement of more than 400 bps to 12.1% in the first 3 quarters, and this is based on the strong top line development and the associated leverage of the functional costs. Moving on to Page 9. Here, I would like to give you a little more color on the drivers behind the evolution of our margin. First of all, I would like to stress, as Stefan has also mentioned before, strict cost management remains a key priority for us at the moment, considering the lower revenue levels that we have alluded to before. We've started early on working on this subject and as a result of that, we've been able to reduce material costs to some extent, and our head count measured in FTE is down by almost 4% compared to the same time last year. So now looking at margin development of our P&L in detail. In the first 3 quarters, we saw gross margin approximately 200 bps down year-on-year, which was primarily influenced by the lack of fixed cost absorption and product mix effects. And on a business unit level, of course, our semi business had the biggest impact here. On the functional expense side, as I said before, I think we remain very disciplined that those expenses declined by about 3% year-on-year despite some general labor cost inflation impact. Moving on to the EBIT line, you see a more pronounced decrease in both absolute terms as well as margin wise as compared to the EBITDA since depreciation and amortization was, as we had expected, slightly up year-on-year. Further down the line, as you may recall from our Q2 call, we have recognized an income of a little more than EUR 2.5 million resulting from a settlement agreement regarding the sale of VINCORION, that was our previous mechanical defense activities. Bottom line, our earnings per share reached EUR 0.80 versus EUR 1.15 last year. Now turning finally to Page 10, looking at cash on balance sheet data. And Stefan has mentioned it before, I think we are pleased with the development here, particularly considering the difficult trading environment some of our businesses are facing at the moment. So despite a decline in earnings, as you can see, our operating cash flow pretax improved considerably year-over-year on lower cash inflows into our working capital. However, working capital intensity has increased somewhat year-over-year, reaching 30.3%. Moving on to CapEx. As you know, in the beginning of the year, we have stated very clearly, our intention was to bring down CapEx compared to the somewhat elevated levels that we had during our investment phase in Dresden last year. Overall, CapEx in the first 3 quarters was down by almost 20%, basically in line with our expectations. Finally, our net debt position was down versus year-end at EUR 366 million, reflecting improved operating and free cash flow performance. Finally, our leverage was at 1.9x at the end of the third quarter. And with this, let me turn back to Stefan to cover our outlook.

Thank you, Prisca. And if you could go to Page 12 and -- or follow me to Page 12. When it comes to revenue, the rest of the year will be a sprint against time for us, essentially finding hard to make sure that we can convert the increased order intake into as much revenue as possible in Q4. In some of our factories, where we used to have or have had short-term work, we're calling workers back into the factories to -- yes, as I say, run against time when it comes to sales and revenue recognition. Nevertheless, we do see that -- we will expect to see revenues for the year 2025 at the lower end of our guidance range. And the figure is -- our guidance range is between last year's figure and minus 5% of net sales. So we believe we are landing around the lower end of that range. We've talked a little about our measures to reduce costs already. Prisca already mentioned, we see FTEs down already. We will see further reduction in FTEs in the fourth quarter, in particular, of course, in our admin organizations. We expect a really high single-digit million euro number as expense for those structural cost takeouts. That included, we believe that our EBITDA margin will be at or around the lower end of our guidance range. And as you know, the guidance ranges between 18 and 19.5 percentages. Last year, it was 19.9%, so if you would basically dial back in those numbers -- yes, you can do the math yourself, but essentially, including those high single-digit million euros, we believe we will be at the lower end of that guidance range. Effects from current macroeconomic and political uncertainties that we all know and we all hear every day in the news and some place else as well as fundamentally very positive developments in the semiconductor industry and their effects on our 2026 business is really hard to assess at the moment. It still is very sort of liquid out there, very volatile. And despite the fact that we do see a good development in Q3, that's great, and we anticipate that that's going to carry into Q4. But for a sort of more precise outlook into 2026, it's really too early. It's really, really hard to give us -- to have sufficient certainty for that. We do think that the expected negative impact from things like material cost increase and wage increase, we will basically offset by our 2025 cost-saving measures, so the measures we talked about, we believe that will offset the cost increase that we anticipate, at least for next year. And as a result of all of that, we expect an increase in both sales as well as EBITDA and an improved EBITDA margin in 2026. The precise number for that, though we can really not forecast at this point with sufficient certainty. With that, thank you very much for being with us, and we're more than happy to -- and expect a lot of questions from you. Thank you very much.

[Operator Instructions] And the first question at the moment comes from Craig Abbott, Kepler Cheuvreux.

Yes. Yes, my first question, please, just -- I realized, clearly, as you said, too early to give a guidance to '26, but you're saying you expect a higher margin versus this year. And I just want to be clear, I assume you're referring to a higher margin versus that, let's call it, adjusted EBITDA margin in '25, i.e., if we take -- if we add back the high single-digit one-off cost. Is that the basis from which we should be working? That's the first question.

We don't adjust our forecast. Obviously, as soon we don't...

No, but we do.

I'm trying to dance around the answer here. But look, let's see where we are at the end of the year and then we give you a precise number, but I think your assumption, by and large, is fair. But we really don't want to give any more guidance at this point. But obviously, given what I just said or what we just said in terms of cost measures should offset cost increase. And then if you -- of course, those restructuring extraordinary costs, those are onetime effects, and they will not show up next year. So essentially, I think the answer is yes, you're correct.

Okay. Well, the second question -- and again, we know it's probably going to remain lumpy and all that for those of us that follow the reporting in the semi space. But nevertheless, could you give us like some kind of feel, even if it's just a ballpark range of what your customers of the litho space kind of indicating to you for '26. There is the expected growth in WFE CapEx next year, probably mid to high single-digit, I think, is the current consensus. So are they kind of like given the indications to be ready, be ready to ramp, we just can't give you visibility yet on when the call-out rates are really going to materially start to increase. Just to kind of give us a feel what the dialogue is like there.

I would refrain from going into litho versus inspection too much. But what I could say is -- because I mean, obviously, the litho there is essentially just one customer, and you'll understand that I can't really sort of disclose that. But overall, if you take it overall, like litho and inspection together, then I think it's fair to say that at the moment, we do see actually a strong order intake or strong demand pattern in inspection. And it's more the inspection side at the moment than the litho side. And for 2026, we really have to wait.

Okay. And my last question and I'll turn it over to -- sorry, Stefan, yes?

Is that fair enough? I know I didn't quite answer your question, but...

Fair enough. And just looking at the other 2 divisions real quick. I mean, Prisca, you made clear that in biophotonics, there were some pull-forward effects that we would have thought normally would come in Q4. Fine, we get that. Nevertheless, a really good performance. But on M&P, you said that also strong order intake -- and you said it was on optical measurement. It kind of like -- it sounds like you were expecting things to like gradually improve here. I just wonder what's like behind that. Is that upgrade type investment? Is that -- or was it a one-off order in that Q3 number? What's driving -- what should drive this number to increase from here?

Craig, just to get you right, your question was on biophotonics order intake dynamics. Is that...

Well, I danced around a little bit, apologies for that. Actually, I was getting to both the M&P and biophotonics. I mean biophotonics, you said in your comments that there were some pull-ins. Don't expect that kind of dynamic for Q4. But if you can maybe on both of those divisions, just kind of give us a feel for how your pipeline is looking?

Yes, yes. And I think -- as I mentioned in going through the businesses, there is fairly different demand dynamics at this point across the 4 businesses, please keep that in mind. So on your question on biophotonics, I think what we have seen is, as Stefan also has alluded to, good medtech demand, but in particular, very good defense application demand in Q3. And as I've mentioned in my comments, we see these orders in this area, particularly lumpy, meaning hard to predict on the one side, but also -- sometimes it's also including multiyear demand. So what we expect is that while we have some orders -- similar orders in Q4 last year, we have seen them in Q3 in this year. That's what we see. Therefore, we expect in biophotonics, a certain normalization. Now this is different from what we have seen in our MPS segment. We've actually seen quite good order intake in MPS, I would say, across the year. We also had a good Q3. I think what we've seen there is that the measurement or the optical test and measurement part, it's actually relatively stronger. I've mentioned in my comments that in the automotive-related parts of the business, we -- honestly, we still see a significant weakness. So you can expect the driver of the -- or the good order dynamics comes more from the optical test and measurement. So yes.

And maybe to follow up on that, Prisca, real quick. As Prisca pointed out already, in the MPS segment, it's essentially the TRIOPTICS business, good order intake and the Hommel business with -- as Prisca mentioned, what -- more automotive related is still somewhat lagging.

The next question comes from Michael Kuhn, Deutsche Bank. Please go ahead.

One more on the one-offs and the expected savings. Firstly, on the one-off, were those like evenly split across the quarters or were there quarters that were more heavily impacted? So just an idea in terms of what was underlying profitability across the quarters. And then into next year, you mentioned you expect those savings measures to basically cover inflationary pressures. Could you also quantify that, that we have an idea what's the million euro number of savings you expect? And how does it compare to the one-off incurred this year?

Thanks so much.

What's that, sorry?

Yes. I think, Stefan -- yes, I think very -- thank you for your question, Michael. So I think this is a very good question. Now maybe let me clarify. The one-off effect in the amount of high single digits that we expect for this year have been in the second half of this year. So you will see a very moderate impact in Q3, and we expect a higher impact in Q4. And that is because the program that is related to that is sort of underway right now. And therefore, you'll see basically the impact on the margin of the one-offs in this time period. Now on to your question of the impact, broadly speaking, I think it would be a fair assumption to assume that the amount of the one-off cost is roughly equal to the amount of the full-year effect of -- in this case, it's personnel cost reduction -- of the personnel cost reductions that we expect -- that would expect roughly a one-to-one relation on that. And that maybe to the last part of your question, that will of course, not fully impact this year as we are implementing towards the second half of the year. So you will see an incremental benefit coming as a full-year effect then in 2026. I hope that answers your question.

Yes, yes, that was very clear. Then to, let's say, on business mix, firstly, in biophotonics, obviously, defense driving that business right now. Would you be willing to give us an indication on the defense share of that business year-to-date, and probably what you would expect into next year and then probably medium term because obviously, defense is not kind of a one hit wonder, but generally expected to stay strong.

I think in the last call, we specified that last year in 2024, defense for the overall group has been at around 3% of total sales in 2024. This year, it will grow over and above that with the share of defense in the overall group will be higher than 2023. We cannot give you a specific number at the very moment. We -- yes, we do expect it to grow even further. At this very moment, it's too hard to -- it's not the right time to -- yes, to tell what's going on in 2027, 2028, it's hard to tell. But what we can say is, again, last year, I think it has been 3% of overall group. And it will be more this year, but we are not talking like 10% or so this year or next. It could come to that point in the future, but let's say we cross that bridge when we come to it. And that's total group, not biophotonics, that's total group.

Yes. No, no, that was clear. One more mix question. In Metrology, what is the current share of automotive versus nonautomotive. And in automotive, also on the last call, we discussed some, let's say, efforts to move away from combustion engines and move into new areas like battery cells and so on. Have you made further progress in the meantime? And what are the longer-term perspective for that automotive-related Metrology business?

Maybe let me take the first question.

Okay. Go ahead.

So just on the numbers, maybe -- so our -- please bear in mind that the MPS business also includes the former Hommel business, including the TRIOPTICS and some other smaller businesses. So the rough estimate of the exposure to automotive is about 50% for this segment.

And this will return to growth at some point? Or what's the perspective?

So I will...

We do have -- Prisca, why don't you go ahead?

Please go ahead, Stefan. Sorry, my bad.

Okay. So yes, correct. We are working on additional applications and new applications for the technologies there. And -- not all of it, even if it's automotive, it's combustion engine related. I think that's important. We cover things like airbag solutions, most of you have heard about that. Regardless of what do we talk, EVs or ICE engines, electric vehicles, others doesn't really matter to us. For that business, we have other new applications when it comes to certain light applications. It's a bit too much to go into all the details here. But interesting new applications that we have based on laser technologies, and we certainly expect that to grow. And what we do expect not to grow at the moment, at least, is the ICE, internal combustion engine applications we have. But overall, I think the automotive industry, as much as it's in difficulties, the applications that we serve are growing ones. And I'll give you another example, ever more cars have cameras, headup displays and a lot of optics are on cars these days. And here, we support our customers with Metrology solutions, for example, to -- with all these cameras that cars have these days and all these driver-assistant schemes that we have in our cars these days and more optics, and that helps us in MPS quite significantly actually.

Very clear. And last one, any news on Prodomax? Or any active conversations going on? Or was that more or less put on hold?

The later one, more or less put on hold. We don't have any active communications with potential acquirers at the very moment. Strategy is still the same. We -- in the long run, believe that there should be a better owner out there for Prodomax. But the difficulties of the challenges or proposals or discussions between Canada and the United States of America doesn't make it any easier at the moment. And given where this business currently is and where it actually should be, and we know it's a strong business actually. I mean last year, it was one of our more profitable units, we believe it's better at the moment to wait and -- until the business is back at the point where it should be, and then try again in an effort to dispose it. Strategically, no change. We still believe that there should be better owners out there. But at this point in time, it's clearly not the right time to go for a sales process again.

The next question comes from Martin Jungfleisch, BNP Paribas.

Yes. I have 2 questions on semis. So firstly, I mean semi orders were better year-on-year, but they were weaker sequentially. I mean would you expect semi orders to improve in Q4 sequentially or is the visibility on semis and specifically litho, not really improving from here? That's the first question.

I think the answer is yes.

Okay. That's good. And then maybe a bit more in detail, right? So you -- I think you mentioned you're seeing lower demand in litho, right? And your main customer there, these EUV shipments to decline in 2026 where EUV shipment should be up. How does this mix impact you? I mean, is it financially really net neutral when you ship more into EUV and is the DUV due to higher ASPs? Or is this, I don't know, net negative. Can you provide any detail on that?

So really, what matters to us is the number of machines sold. For us, the -- there is -- we do take more price for EUV versus DUV, but not as much, if that makes sense. And so what really matters for us is not the revenue growth, but the number of shipments growth at our main customer. And so it's good, it's good for us if there are more EUV machines than DUV machines. But what really matters is the overall number of machines shipped to us.

And the content in EUV is not higher than DUV, right?

I mean, I can't go into very specifics here, but let's put it that way. Essentially, the technology is needed in both. Obviously, EUV is more complicated than DUV. Therefore, it puts a bit more and it's a bit more expensive, cause a bit more to produce and it's more expensive. But it's not like you need 10x more product for EUV machine versus a DUV machine. That's why I'm saying, by and large, at least, these are just sort of really back on the envelope figures. But by and large, for us, it matters the number of machines shipped and not that much the number of revenues sold by our customers.

The next question comes from Lasse Stueben, Berenberg.

Just on guidance for this year. If I'm just looking at the fourth quarter, if I take out that one-off effect, you're looking at basically stable margins on Q3. I'm just wondering in terms of mix, are we -- does that capture biophotonics remaining at a similar level kind of in the fourth quarter? Or should we expect that normalization to already take place in Q4? And then the second question would just be on defense orders within bio. Can you just help us understand the lead times here? Or if that's materially different from the rest of the business? And also what that means in terms of profitability because we've heard from other businesses that defense customers tend to be, how should I put this, willing to pay a bit of a better price than others? So just wondering how you see that in terms of margin mix as well.

Yes, maybe I'll take the second question. And Prisca, if you can take the first one? So the second one is the defense business. Yes, the lead times in defense tend to be longer -- or the time scales, I should say, tend to be longer. And it's not necessarily always more profitable actually because often, it's -- times at least, it's like open book contracts. And it really depends on the individual projects and the individual agreements. So it's hard to say overall, the defense business is more profitable. But I guess, by and large, it probably is. There is pressure on price everywhere in defense as much as in other applications. But there's always, if demand is so much higher than supply, then the supplier has good position when it comes to price negotiations. And I think if that answers the question, then I would hand over to Prisca for the first question.

Yes. Yes, of course, Lasse. So your question on the biophotonics margin level. I think I've mentioned it also in my comments earlier, we're having a really, really good year for biophotonics. On the demand side, as I just discussed it with -- particularly defense, but also on the top line growth and margin expansion. So I've cautioned already in the last call and I will do that again, I don't expect this to be a run rate margin, and I would expect the margin somewhat to contract again, as also expected. And that also includes the fourth quarter specifics, now biophotonics. On your second part of the question, when you said one-off effect, I assume you mean the one-off costs regarding to the personnel reduction. Bear in mind that there is effects both in the Q3 and in the Q4. I would expect the effect in Q4 more pronounced. But of course, it's in both quarters.

The next question comes from Olivier Calvet, UBS.

A couple of questions. The first one on semi. Could you remind us how to think about lead time for EUV? Or if your clients get an EUV order, when do you think you'll see the orders come in? That's the first one.

Well, typically, we do get frame contracts and we produce sort of level loaded and then into stock and then basically get a call of and then we ship the product and then we cut an invoice and revenue recognized. Often, we have POC revenue recognition with that, but it does depend on the individual contracts. It varies, shall we say. And -- that's what I'm saying. Lead time, it's not as if we get an order and then we start to produce the product and therefore, it can be shipped, I don't know, x weeks later, but we have a frame and we know roughly how many products over a period of, let's say, 2 years or so, we need to produce. And that's why we balance and then we shift whenever we get them to call us. So it's hard -- lead time is a difficult term in that respect. Visibility is probably the better term. How much visibility do we have? And it -- I used to say in the past, we have a couple of quarters, that's shorter now. We -- the visibility is much shorter. That's the point. More than lead time is the question sort of visibility for us. And that, for us, at the moment, is more like, let's say a quarter or so more than -- and in the past, it was more than -- more like 3 quarters.

Yes. Okay. Makes sense. Well, on the topic of visibility, I understand that we don't have enough details from your customers to create like a new 2026 formal guidance, but it's also when the current strategic period now lapses. So I'm just wondering, if you're thinking about the midterm update, when that could come?

Yes, I think that's fair. I think -- we need to do a midterm update sometime next year when we have more clarity. It's a very fair comment. We're not in the position as of now, but I think in the next year, you can expect the new midterm plan from us.

Okay. Okay. And finally, just on Prodomax. It's still within the other part, like not in the segment. Can you just give us a bit of color on how the business develops profitable in other [indiscernible].

Yes. It's in others because it doesn't really fit into any of the segments. And we also want to highlight and signal that we still -- into, looking from a strategic point of view, find a better owner for and a better home for Prodomax since there is, pretty much, next to no synergies anymore to the rest of our business. How it develops? Well, it is challenging for Prodomax at the moment. I mean we're talking really challenging. Prodomax has lost significantly in both in terms of orders and sales. And we really talked significant numbers here. And as a result, of course, profits are down. They are still profitable, but given that it was -- used to be one of our most profitable units still in the last year, me saying they are still profitable indicate the size of the issue. It is significant. I mean we do see light at the end of the tunnel in terms of now more requests for proposals, and that's good. There is activity going on again in Ontario, in the automotive industry around Toronto. And in particular, now that it turns out that most of the products are actually what's called CUSMA exempt. So CUSMA is basically what used to be NAFTA in the past. And therefore, now that the dust starts to settle on the tariffs, it turns out that most of the products of Prodomax are actually not -- the tariffs are actually not applicable, but the whole uncertainty in the region is what's so hard for Prodomax at the moment. And I'll use the term significant when you ask me about the impact of it to the business.

Okay. Okay. That's helpful. Just a final one on the defense side of things, actually. Can you provide us about the kind of applications that you're supplying here, if you can?

Yes. Yes, sure. I mean those products that we have in the portfolio ever since it's optics, photonics space, products for range finding, for night visions, those type of stuff. So not new product developments, but the products that we had in the portfolio all the time, but didn't see much demand for it in the past and now demand is increasing like big time. I mean...

You're selling a complete solution? Or is that just a part of a...

No. The delay one. We sell optical components by and large.

[Operator Instructions] And there is a question coming from Malte Schaumann, Warburg Research.

First question is on the OpEx. That has come down quite strongly to the third quarter of the year. So I was wondering, having in mind the additional cost savings, what's your target OpEx run rate for 2026? Maybe that was a bit -- artificially down in the third quarter, but maybe not. So maybe you can share some color on what the expectations on functional costs are for next year?

Yes, Malte -- yes, exactly. Thank you, Malte, for your question. I cannot give you an expected OpEx run rate for next year. But what I can tell you is that, as Stefan has already mentioned and then I as well, we've been very cautious on adding personnel wherever we have people leaving. So attrition, basically, we have used that to not hire again. Top of that, we've already talked about the cost saving, personnel reduction measures. So of course, that goes across both gross margin but also several OpEx lines. So you'll see a positive impact from that. Now labor cost inflation, I would expect in the -- broadly in line with what we've seen this year, what we have read now. And then also bear in mind that there is a small part of amortization in some of the OpEx lines that are also decreasing and comes from the normal purchase price allocations of the previous acquisitions. So if you take all of that, you get a few ups and downs in what happens in the OpEx. But I can assure you that we will continue to be very, very strict on cost management across, and of course, that includes also the functional expenses.

Okay. Good. Then on MPS and the order intake, you indicated that it is mostly coming from TRIOPTICS. I was wondering which applications are driving the kind of uptake? We have recently seen some improvement maybe in the AR business with the recent launch of the meta -- new meta glasses. Is that something that is also beneficial to optics? Or do you actually see other applications driving the uptake? And then what's the sustainability of maybe a better business from what we have seen in the past?

Malte, thanks for that question. I don't want to go into many specifics in the product lines here, but it's measuring -- the measurement of the quality of optical components for a number of applications, yes, AR/VR is part of it, but there are also just classical optics production at the very high end, and other systems is growing strong at the moment. So others in terms of advanced driver assistance systems for the automotive industry. And the combination of all of that is driving the demand, in particular, TRIOPTICS at the moment, and business in Asia.

Okay. And this is somehow sustainable, so you see kind of a better pipeline than going into next year?

It can be lumpy, but I don't want to forecast the rest of the year. But overall, yes, I would say it's sustainable. No, that's -- don't take that as a guidance on Q4 order intake MPS, please. But in the midterm, yes, I would think so.

Okay. Then on the biophotonics, again, you indicated to expect a normalization of the order intake in the fourth quarter. We have seen quite significantly, differentiation between order levels. So should we assume that maybe the second quarter order level we have seen is that kind of a normal level you would consider as normal going forward? I mean, Q1 has been significantly lower than that. Last year has been between 40 million and 70 million. So maybe you can add some more color on that?

Again, very difficult to answer the question. As Prisca already pointed out, that business is very lumpy. I mean, you can get big order intake swings from, in particular, defense contracts space, if that's what we're talking about. And therefore, it is very challenging to predict, so to say, order patterns by quarter. I would probably not do it. But focus on the long run on mid range and long range, I would say, the medical and life science industry is still under pressure overall. We all know that. And that's -- there's still the remaining of the post-COVID blues. There is the fact that research budgets are cut, NIH budgets are cut and so on and so forth. That will have a negative impact on our biophotonics business in 2026 and maybe beyond, but particularly in 2026. And on the other hand, defense budgets are growing, in particular in Europe, but also in other parts of the world, and that should have a positive impact. And which one of those 2 factors is stronger, it's a bit hard to tell, but I would say life science, health care, more on the negative side and defense on the positive side. And we'll have to see what that means for 2026.

No. Okay, understood. Then on semi, the indication for kind of an improvement -- sequential improvement in the order intake into the fourth quarter, is that also then mostly relating to the inspection side of the business?

No. Okay. Sorry. I got to place my [ wording ] hopefully now. But no, I think -- I would say that goes overall for the total semi business.

Okay. Let me just wait a couple more seconds if there are any more questions coming in. But that does not seem to be the case. So I'd like to hand it back to the speakers at this point.

Okay. Well, thank you very much for being with us today. I think the discussion has shown a bit of a bumpy ride at the moment. Most important for me -- for us is that we really have a sprint ahead of us for the next couple of weeks to make sure that we can turn as much as possible those nice order intake patterns that we have seen in Q3 into sales in Q4, and have a good basis and a good foundation for 2026. And with that said, thank you for -- again for being with us. And to our teams everywhere, good luck and all the best for the rest of this year. But no -- jokes aside, I think we will see a good closure of the year with all the challenges that we had throughout the year. We always indicated that, the second half will be better. And those of you who follow us for a bit longer, you will probably know that the fourth quarter tends to be the strongest by far for Jenoptik. So we'll work hard to deliver that this year as well. Thank you very much.