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

Ladies and gentlemen, welcome to the Q3 Full Year (sic) [ Fiscal Year ] 2025 Trading Update Conference Call and Live Webcast. I am [ Mattilde, ] the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Christian Waelti. Please go ahead.

Thank you, [ Mattilde, ] and good afternoon, good evening, everyone. I'm Christian Waelti, Head of Investor Relations. I'm joined today by Peter Mainz, our CEO; by Davinder Athwal, our CFO. As you know, earlier today, Landis+Gyr issued an ad hoc release and related presentation on the Q3 FY 2025 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, where Mattilde 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, just outside Atlanta, with Davinder, our Chief Financial Officer, and we are pleased to provide you with an update on our third quarter performance. With that said, let's now start with a review of the highlights of our performance in the third quarter and the first 9 months of our financial year 2025. Let's move to Slide 3. This is actually the first time Landis+Gyr is issuing a quarterly trading update, and we are publishing it after market close to accommodate both our European and North American investors. We believe this provides investors with an additional data point and increased transparency, highlighting our quarterly performance and seasonality throughout our fiscal year. In the third quarter of financial year 2025, we continued the solid momentum from the first half year and delivered performance significantly ahead of the prior year quarter with both net revenue and adjusted gross profit expanding by double digits. We are also particularly happy with our order backlog, which has increased by almost 30% to about USD 3.9 billion in the past 9 months, reflecting the strength of our pipeline, driven by the increase in load growth combined with the enduring trust of our customers. Importantly, book-to-bill in our largest segment, the Americas, remained at one. With disciplined execution and solid demand across our core markets, we are confident in a strong Q4 and therefore, reiterate our financial year 2025 guidance. At the same time, we are progressing well on our strategic priorities, including the EMEA divestment and preparations for a U.S. listing. On to Slide 4. Let's cover how we continue to execute on the strategic initiatives outlined in October 2024 in more detail. Last September, we announced the divestment of EMEA. Our teams, together with the buyer, are currently working diligently to carve out the business. Earlier in January of this year, the transaction received regulatory approval from the European Commission under the EU merger regulation, and we aim to close the transaction, as mentioned before, in Q2 of calendar year 2026. What remains is a global business focused on North America and Asia Pacific. We are excited about the global appeal of the offering with a focus on advancing a high-quality global business built around grid edge intelligence solutions and delivering exceptional value to utilities worldwide. The focus on this business will elevate both our EBITDA and cash profile with very low capital intensity, creating an exciting and very different financial profile for the business. And with that in mind, we keep on working towards a U.S. listing in the second half of 2026, aligning capital markets with the majority of our operational business activity. This includes a continued listing of the shares in Switzerland on the SIX Swiss Exchange to enable Swiss investors to participate in the value creation of Landis+Gyr's strategic plan. A Capital Markets Day will take place in New York on June 1, 2026, to update the investment community on the company's profile following the EMEA divestment. And finally, we launched our buyback program last November and have so far bought back close to 1% of our outstanding shares from our strong balance sheet. And now I will give the floor to Davinder, our CFO, who will walk us through the key financials.

Thanks, Peter. Good afternoon, and good evening, everyone, and thank you for joining us today. I'll briefly walk you through our Q3 results, covering order intake and backlog, revenue and gross margin and then conclude with our full year guidance. Overall, we continue to see strong commercial momentum and remain confident in our outlook for fiscal year 2025. Let's begin with order intake and backlog on Slide 5. Order intake for the first 9 months of the fiscal year was $762 million, resulting in a book-to-bill ratio of around 0.9x, reflecting sustained customer demand across our core markets. As a result, our backlog increased by 26% to approximately $3.9 billion at the end of December. Importantly, around 40% of the backlog relates to software, supporting high visibility and strong margin quality through recurring revenues. Geographically, backlog growth was driven primarily by the Americas with continued momentum in APAC. Pipeline activity remains strong, especially around our grid edge solutions, which we continue to see increasing customer investments. Our backlog position gives us solid visibility into the fourth quarter and beyond. For the full fiscal year, we expect a book-to-bill ratio of around 1x. Turning next to revenue and margins on Slide 6. Net revenue in Q3 increased by 39% year-on-year to $278.7 million, driven by higher volumes and strong execution. This performance was primarily due to a more than 50% year-on-year increase in Revelo shipments as supply conditions continue to normalize and customers accelerated deployments. For the first 9 months of fiscal 2025, total net revenue amounted to $814.7 million, representing a slight decline compared to the prior year, driven by the earlier achievement of project milestones last year. Adjusted gross margin remained broadly stable on a like-for-like basis. Excluding a onetime gain on sale of real estate recorded in fiscal 2024, margins in fiscal 2025 are consistent with the prior year. During the third quarter, margins were impacted by less than $1 million of tariff-related costs, which we continue to actively mitigate through pricing actions, sourcing initiatives and operational measures. Overall, the underlying margin profile remains resilient, supported by volume leverage and the growing contribution from software. And now turning to our fiscal 2025 guidance on Slide 7. Based on our year-to-date performance, backlog visibility and the momentum we saw entering into Q4, we are reiterating our guidance for fiscal 2025. We continue to expect net revenue growth of between 5% and 8% compared to fiscal 2024 when we reported net revenue of $1.123 billion. We also reaffirm our expectation for an adjusted EBITDA margin of between 13% and 14.5% of net revenue, including approximately $10 million to $15 million of temporary dis-synergies on an annualized basis. We anticipate a strong fourth quarter, driven by robust business momentum, shipment normalization and continued operational discipline. In summary, demand remains strong, execution continues to improve and our financial performance is tracking in line with expectations. With that, I'll turn the call back to the operator to take your questions. Thank you.

[Operator Instructions] The first question comes from the line of Gupta Akash from JPMorgan.

I have two questions to start with, and I'll ask one at a time. The first one is on -- commentary on order intake. I think, Davinder, you said you're expecting 1x book-to-bill for full year, which will imply a recovery in orders in Q4. Maybe can you talk about how much visibility do you have already as we are towards the end of the month? And then how does the pipeline for order intake look like beyond the current fiscal year? So that's the first one to start with.

Yes. Thank you, Akash. So was a bit difficult to hear, but if I want to reconfirm the question was around our order intake. And I want to focus on the order intake for the North Americas, where our largest segment, our most important segment. And for the first 9 months, we had a book-to-bill of 1. So we continue to have exceptional performance here on the order intake side. And as I've mentioned multiple times in our business, if we have one of those large wins as we had at the end of the second half of last fiscal year, that distorts the book-to-bill ratio, we are at 1.4, 1.5:1. And outside those, a book-to-bill of 1 is what we are aiming for, and we have achieved that over the first 9 months, and we continue to push for that over the remaining two months that we have now to end the year on that book-to-bill ratio as well. Pipeline is supporting it and pipeline certainly in North America is very substantial exciting pipeline that we see, and we continue to not just see the pipeline activity, we also see pipeline transition into orders transition into the backlog. So we feel quite good with the momentum we have and the momentum we see in that area.

My second question is on margin. So if you look at your Q3 gross margin, it's up 20 basis points sequentially and 33% in H1 and 33.2% in Q3. And if you look at your full year guidance, which is on adjusted EBITDA, you guide for 13% to 14.5%, and you had 12.9% in H1. So I wanted to ask like are we now going to end towards, let's say, lower half of margin guidance? Or can you still do the midpoint of the guidance on full year margin?

We'll be within -- sorry, we'll be within the guidance and no indication to the low end of the guidance. We are within the guidance. And the gross margin profile is certainly driven by Revelo continuing to pick up and continue to outperform on the margin levels what we have seen a year ago when we were earlier on in the launch of that platform.

Maybe another way, if you look at gross margin for Q4, can you exceed Q3 when we look at your product pipeline? Or is it going to be more in line with what you have delivered in Q3?

Yes. I mean, I think Q4 is very much in line with the profile that we have seen in Q3 and also in the first half. Remember, Davinder mentioned that tariffs are abating in our profile. And then as you look at the calculation for the revenue in the fourth quarter, operating leverage is the second substantial driver for the gross margin continuously enhancing.

The next question comes from the line of Jeff Osborne from TD Cowen.

Just a couple of quick questions on my side. I was wondering, you highlighted the activity in the market is still strong, but are you seeing any delays in the regulatory environment as it relates to approving any of the projects that you've been technically awarded?

Not any different than what we've seen in the industry over the past decade. So I would not highlight any regulatory delays and the customer base that we have or in the market that we participate in. So nothing changed from what is typical for the industry. We continue to see accelerations and delays. It's just the nature of the industry. So nothing abnormal.

That's great to hear, Peter. I just also wanted to confirm, I think on the new Governor of New Jersey on the 20th of January signed an executive order around utility costs and future rate base increases. The contract that you folks won with [ PSE&G ] has already been fully rate base at this point. And so there's no delays or impact from that executive order that was signed last week. Is that correct?

That is absolutely correct, Jeff.

Okay. Just wanted to double check. And then the last one I had, a bit obscure, but there are some industries that have been highlighting in the earnings call cycle issues with memory availability and memory pricing. Just with the Revelo product cycle and being able to download apps, I wasn't sure what your exposure is. Are you having any challenges either on price and/or availability of memory for your product cycle that needs that?

We have certainly seen that the market a bit tighter than before. We're not anywhere close to what we've seen in the supply chain crisis, what is it, 4 years ago. So we're not anywhere close to that. So we saw a bit of tightening. We saw a bit of an increase in lead time, but nothing to date that doesn't allow us to manage it. But we certainly slightly noticed that.

We now have a question from the line of Christoph Grau from AWP.

I have two questions on your strategy. First of all, on the second listing in the U.S., why do you maintain your listing in Switzerland? You said something about participation of the older shareholders. And does this pay out for you the second listing? And my second question is, is the move of your headquarters to the U.S. an option for you in the long run maybe?

As I said -- thank you Christoph, sorry. As we said at the beginning of the call, we're actually taking this call from outside of Atlanta. So I would say, operationally, so we are already very much set here in the U.S. And if you go back a couple of the announcements that we made, I live in the U.S. and Davinder lives in the U.S. We have a Chairperson. She lives in the U.S. So we are focused for the operating -- operative support of the customer base that we have going forward that is more than 70% in North America. That's where we are set up. And we also continue to take advantage of the skill base that we have in our current headquarters in Switzerland and continue also to take advantage of that to support the business going forward. The dual listing, we have been successfully listed in Switzerland for the past 8 years. So we have a shareholder base in Switzerland that we just want to take care of and we want to make sure as the strategy plays out and the value creation is realized that the shareholder base that stood with us over the past 8 years that we take them along for this very value creation that we're aiming for.