LPKF Laser & Electronics SE (LPK) Earnings Call Transcript & Summary

Hello, everybody, and welcome to our conference call for the first quarter 2025. My name is Bettina Schafer. I'm Head of Investor Relations at LPKF and your host today for this call. [Operator Instructions] The conference will be recorded and published for a period of 2 weeks on our website. Our CEO, Klaus Fiedler; and CFO, Peter Mummler, will now give you an overview of our business development in the first 3 months. And before we start, I would like to point out that any forward-looking statements in today's presentation are based on information currently available. These forward-looking statements are not to be understood as guarantees of future performance and results. Ladies and gentlemen, I now hand over to Klaus Fiedler. Please go ahead, Klaus.

Thank you very much, Bettina. Hello, and welcome, everybody, to our Q1 earnings call, giving you an overview how the first 3 months progressed against our plan and ambitions for '25, of course, giving a deeper insight into movements in our markets and how we positioned ourselves and of course, also giving you an insight how the current tariff situation in the U.S. is shaping up for LPKF and how we are responding to it. Let's get started with the first slide, key takeaway from Q1. Solid start with revenue into the year, meaning we are pretty much exactly on what we plan to happen for revenue recognition in the first quarter. And we see that the cost-saving measures we implemented in the second half of '24 now flow through to our EBIT to our bottom line. So in adjusted EBIT, we are up 21% on previous year, and we are continuing to push in this direction. But the first measures really show an effect now. When we look at how did order intake develop and how does it shape up for the year, if you just compare year-over-year, you see a significant reduction in backlog. That is solely due to a major solar order that we received in March '24 and that, by and large, we have shipped by now. So I don't see from an order entry perspective, anything deviating from our expectations in the other 3 business units. And I'll come to where we stand in Solar, specifically in also orders for '25 on the next slide. Where we have a deviation in the positive direction from our plan, we see a strong increase in order entry in our Welding segment. And as you well know, our Welding segment had a very disappointing '24. So we refocused the business on consumer electronics, on medical. And we see here that we have received a large order from the consumer electronic market that definitely gives us a foundation to make and exceed our numbers for '25. Looking at the strategic business development, as you all well know, we have received the first operational order in the display sector with LIDE and are now in the phase of operational implementation ramp-up and, of course, further market penetration. We have a clear goal for '25 to repeat the same thing in advanced packaging, and we continue to see that our positioning develops as planned. We acquired another customer from Korea, who now bought his first LPKF LIDE machine, which basically gives us a very strong footprint with all the players positioning themselves for this technology. Tariffs, I'll come to more details in the next slide. Of course, we were prepared for tariffs to come in a sense of we don't have any tariffs that are now on our bill to pay. So we basically cleaned up the backlog for this risk months in advance. But we definitely see now the first effects on how U.S. customers respond. That, by and large, is within our expectations. But of course, we are monitoring very closely what it means for global business development for global appetite in capacity expansions, in CapEx. And this is something we will continue to monitor through Q2 because it continues to be a very volatile situation. And as mentioned, the first measures we implemented to gain efficiency, to reduce breakeven point are now visible in our bottom line. We will definitely -- and I'm very happy now as a 2-person team with Peter as CFO on board to continue to strongly drive in this direction. We want to continue to be a first mover and innovator. That's our DNA, but in the most efficient way possible to improve our breakeven point, improve our bottom line. A couple of more details on markets and business development on the next slide. So how do we see the market situation? Looking at Q1 now, we see a stable, moderately growing order entry for electronics and prototyping, even having some headwinds with the currency rates, with the strong euro now. We see a growth here. So from the fundamentals in Q1, that is all right. As mentioned, continued high activity for LIDE and advanced packaging. We see no customer basically reducing his energy level here, and we are continuing with very high attention to position ourselves. Again, our positioning is, I would even qualify it as very good. So the worst thing we could do is become complacent, not be paranoid about competition. So we are very close to the market and customer here, clear goal, first operational ramp-up PO in '25. Display applications are in market penetration phase. We, of course, observed how the tariff situation, which, of course, also affects the mobile device market, affects the plans of our customers here. And I see that we stay the course and will ramp according to our plan and therefore, also sell according to our plan in '25. Solar, we continue to see an investment hesitation for thin film solar in China. So U.S. is for me pretty much on track. We are delivering completely on track our large volume order we received in '24, so exactly a year ago. It's normal business development that we are now negotiating follow-up orders for '26. So this delta in the backlog is not anything unusual for me. In China, we are very late in the year to collect our POs for the '25 revenue. The deals are very tangibly identified and in the final phase of negotiation, but it's definitely a year with low investment appetite and of course, a lot of local players fighting for every deal in China. So this requires full attention. The deals are identified. We got to execute and convert to stay the course for '25. And as mentioned, automotive market for laser welding continues to be very slow. So there are a few deals to be picked up, and I guess that is very well known that this is not a bullish market at all at the moment. Our focus on consumer and medical bears fruit now. So from an order entry perspective and also on how we will now grow in Q2, we see ourselves above track, and that is helping us to get back our troubled welding division '24 was very disappointing back on a growth track and not only in the core markets, but also with innovation. I'll come to that in the business development. So on the business development, as you well know, we have a complete map of the ecosystem in the semiconductor packaging sector and clearly have identified where our players that have not yet bought from LPKF and decided on our technology. A few white spots were left. One we could check in Q1, also decided for LPKF. So our positioning is on track to our ambitions in advanced packaging for LIDE. When we see how Solar is developing, the drive for perovskite continues not as frantic as it was in '23, but more on a steady state get this to qualification level. We continue to be well positioned by having prototyping lines, both in the U.S. and in China, and we continue to permanently optimize our technology to deliver the strong USPs we need to compete against specifically local Chinese competition. When we look at fundamental growth drivers in Electronics, this technology shift from milling legacy technologies to laser [ independeling ] continues. We made good progress with large key accounts, who are now qualifying to switch to this technology. In the portfolio business, we are observing at the moment how the current tariff situation basically drives general investment appetite here. And specifically now for April, I expect that many players have first needed to sort themselves because they know -- before they know how they continue with their overall CapEx plans. And as mentioned, with new market focus in Welding, we see that we are back on a growth track, but LPKF stands for highly, let's say, differentiated innovation. So our new product line, ATA absorbent to absorbent, it has been introduced to the market. First machine is shipped and the lead customer is working with it. We are generating far stronger interest in the broad market and we'll continue to develop that product line to counter the very weak automotive market that we expect this and also next year. And when we look at the operational part, operational execution is on track, no significant bottlenecks. We are shipping as planned. As mentioned, and Peter will show you more details on it, the cost reductions we implemented in '24 now show the flow through to the bottom line. So the first effects to turn around our breakeven point and lower it are now clearly visible in Q1, but we will continue to focus on that topic and deliver more and also continue to focus on cash generation and therefore, also working capital reduction. That's the overall situation that we see ourselves in. The tariff situation for short-term effects was basically anticipated by us and the short-term effects are within our expected range and managed. How the global economy and how the reshuffling of certain value streams will now pan up, we are in close observation mode and counter steer wherever possible. And with that, I want to hand over to Peter, first time with us, very welcome, Peter, to give us an overview on the figures and the financials.

Thank you, Klaus. And yes, 30 days, and I will start and give you a little bit overview about the quarter 1. When we look at the quarter 1, overall, the message is we are on track. We are where we want to be. When I compare this in the revenue, we are -- we have a stable revenue with all the circumstances in the market. The profitability and the EBIT, we show an improvement. This is what Klaus mentioned, the impact about all the measures of cost savings and reduction. You see it when you go to the last line, you see this impact already. There is an employee reduction. This is an impact about our improvement programs. This will be keeping on focus, and this is what as being new on board, one of my focus areas where we are going deeper in the future is really to keep going on this and even improve more potential out of this program. But this helps a lot to come to the profitability improvement. Incoming orders, Klaus mentioned this already. This is majorly driven by our SQ business. And when you go down, the impact in the orders on hand, the reduction compared to the previous year is due to the Solar businesses in the U.S. and China. What is a shift like a shift to Q2 in the Chinese business. Free cash flow. This is an improvement out of profitability. We will come later on a little bit more where we're getting really good in this. We make the right steps, but further is this one of the focus area we need to go deeper in the next quarters. But we are on track. We're doing our homework here. We're improving. And overall, we are in the range where we want to be. Next slide. Going to our business units. Klaus mentioned a couple of these things when I go really from the top to the bottom, the Electronics, they have a growth in the semiconductor areas in quarter 1, but we have a little bit a slowdown in the SMT market. This reflects immediately the areas of the profitability of the business too. This is something what was in the range where we want to be, but this would be improving towards the next quarters. Development, very strong revenue really in the first quarter. And we see the impact in the profitability, what's really showing a good direction where we are going in the development business. Here, the topic in quarter 1, we have no ARRALYZE business contributed so far. Welding, challenging quarter 1. This is where we're focusing in improvement areas, especially profitability. You see this at quarter 1, the lower quarter 1 in the revenue immediately shows us a significant impact in the profitability. Here, major orders from quarter 1 will have a positive impact in the growth in the quarter 2 and 3. We will see this later on coming. Therefore, there is a good order income in the quarter 1, what will reflect immediately an improvement in the next quarters. That's the reason this is not worrying us because there is something in the backlog what will lift the business towards the end of the year. Solar, very good first quarter, very -- and you see this, we are really happy we're delivering, and therefore, we're showing a really a high delivery performance in Solar first quarter with a profitability and outcome towards the adjusted EBIT. Overall, this is on track. Now to come to our free cash flow. I already mentioned when you really look at the free cash flow, we are improving. We are really going the ways where we want to be. We're improving in the net working capital areas, exactly what we plan to be. Here, you see even savings measurements in there in this area. We have process improvement here. This you see in the -- again, in the net working capital area. What we're expecting in this really upcoming quarters in the upcoming second half year, we will expect an improvement in the free cash flow. This is really the plan. It's still in our plan, what we're expecting in Q1. Therefore, we need to keep going improving this area, this net working capital further towards the next quarters. Going to the next slide. This is where you can see with the working capital here that we have different areas where it shows the quarter 1. In the one area, we had due to an increase in the inventory, this is really related to our projects. We did a very good job in collecting cash by trade receivables. We improved here. All the measurements was really was pushed starting in the end of '24 was really now getting the benefit. The contract liability is exactly what we mentioned in the order intake in quarter 1. The Solar business is normally has an advanced payment impact. Therefore, we had an impact in this contract liabilities because of lower advanced payments out of the Solar business. And this overall reflects that we had a slight improvement in the working capital. If we would get one of the Solar businesses in the quarter 1, it would look like -- would like much more favorable. But I'm expecting in quarter 2, we will see an improvement here, especially in the working capital area, too. And then I hand over to Klaus.

Thank you very much. So looking at the overall situation, and it's 4 weeks now since this tariff volatility started. So we begin to have a first view how we see our customers basically responding. We stay within our guidance for '25. We see upside potential, and it's partly already realized. We also see risk in the portfolio business where visibility is only for a few months ahead, but we see that we stay within our full guidance for the year. For Q2, we widened our guidance. Usually, we would guide a lot narrower than a EUR 7 million bandwidth here, but we have the situation that several of our customers really need to completely rework their '25 plans. It's a new global situation we have here. And we see a good foundation, but we see that certain deals could be delayed, decisions could be delayed for CapEx. So we made it broader EUR 28 million to EUR 35 million and adjusted EBIT following it. From the general aspiration, we stay the course. We have our core business where we defend market-leading positions and our contribution margins here and grab the most out of the market, but with leadership positions usually following the market. We focus on 3 large new markets where we want to gain a different level of scale. Display now over the operational hurdle in the market penetration phase, that's good. Advanced packaging, taking this hurdle within '25 with a good positioning, but many competitors wanting a piece of that very big cake and following with a couple of years delay, the biotech market where we see the potential, but are maybe where we were with LIDE 3 or 4 years ago. We are in the learn, adjust, figure it out phase. And with that also targeting and realizing an EBIT level out of scale with our good margins and the flow-through with managed fixed costs that will reach attractive double-digit level. And with that, I hand back for Q&A to Bettina.

[Operator Instructions] All right. I can already see some hands here. [indiscernible] Capital that’'s probably Mr. Reese. I have unmuted you.

You can hear me, I believe, yes?

Yes.

Okay. Maybe like always, some questions. First, maybe let's start with the new welding machine or solution, I think, was the name for consumer. You have this one large order. Could be other orders coming as follow-on? How is the interest in this solution? Therefore, maybe could there be a further turnaround of welding led by consumer in 2026?

Let me answer it immediately. No, we have a lead customer, and he bought a first machine that I wouldn't call a large-scale order yet. It's always good to enter a new technology with a clear lead customer. And that's a chief check marks. This machine is basically out there. We have more customers who are interested. And yes, we will sell a couple more machines already in '25. But we also need to make sure that we can serve these customers with rapid sampling and so on. So I do not see that we will have suddenly a hockey stick in revenue in '25 with A2A. I see that coming with '26. But with the large order inflow, and that's in the books, that's not to be earned in the future that we see from consumer electronics in our core business right now, I'm very confident -- I'm actually 100% confident that Welding will make their numbers and actually reasonably confident they will exceed their numbers in '25. I hope that answers your question, Mr. Reese.

More than answers. Maybe to LIDE is definitely the focus for the future. You talked about the penetration in the display area. Is the first maybe when will the product comes out, which is produced on the orders you received at the end of last year? And if I got it right, and you mentioned even in the Q4 call, there could be maybe follow-on orders. Your partner is looking for maybe in discussion for further orders now. So is that the right reading? But the headwind is maybe a little bit the tariff discussion and maybe a little bit hold back on investment decisions. Is that the right summary? Or is it?

That's absolutely the right summary. So beginning of April, I was getting super worried that now the mobile phone makers may delay ramp-ups because they are worried with the tariffs, who will buy our phones and so on and that this could delay our operational ramp for the display sector. That risk is no longer present. I cannot tell you, but I know exactly what device and what ramp-up curve behind and so on. And of course, our partner in Korea is very actively winning further customers for this technology. In my forecasting, I took a cautious approach here because with this current turmoil and the tariffs, I would expect that many companies take a more cautious and less bullish approach. But I'm totally fine with just executing this ramp-up, proving the technology and winning further deals for '26. That's the situation in display, Mr. Reese.

Sounds very good. And the display business alone is clear positive -- will be clear positive in '25?

Absolutely. I mean this is now beginning real operation ramps. But again, the first project is a small fraction of the total market. More will come, but it's a market penetration phase and no longer a market entry phase with a new technology. And in my experience, penetration expansion is a lot easier than just getting in.

So let's move to the even maybe larger opportunities, advanced packaging. If I understand it right, it was more maybe optimistic now with your statements that there could be also maybe a first production order for advanced packaging from the semi space in this year. In the past, you said it's not totally clear maybe 2026, but you are very optimistic that at least one customer makes a first step.

I continue to be absolutely optimistic on receiving the order. Beginning of the year, I saw, hey, if one of these guys gets really bullish, maybe I get a part of this order still into revenue recognition for '25. With the tariff situation and everybody trying to reshuffle their whole plans for the year, I am less optimistic about that. But the strategic goal, it's my #1 goal. That's what I'm managing towards, make the same step in advanced packaging, be in with the first operational order, and I see ourselves really nicely positioned for that. Then we are in a market penetration phase, and then it's much more regular business than just getting in.

100% believe in this advanced packaging maybe the mega trend in next half year -- next half decade.

More. There's more to come, believe me. Let's focus on tangible deliverables here.

Okay. On the other side, on biotech, I have the feeling it's even a little bit more pushed out than maybe a year ago. So the learning phase is 1 or 2 years longer than you originally expected.

That's one aspect. And very clearly here the situation in the U.S., and it's not just tariffs. You see what's happening with grants for universities and so on at the moment. There, we simply need to refocus, and we are shaping out that plan as we speak. We got to be nimble and act. I saw that the guys made really good progress with getting into universities in the U.S. But with this change that has happened now since, let's say, the past 4, 5 weeks, be realistic and pick your battles and then we will do a refocusing and we are shaping that out as we speak. Again, I'm fully committed LPKF should be a player in the biotech space. I also know that you cannot start a new business and expect a hockey stick a quarter later, but we got to adapt and adjust whatever external factors affect our business. And here, I clearly see, yes, we absolutely got to do that.

Okay. And therefore, you reduce costs at the moment there was one area you may have stepped back a little bit, yes.

We will always adapt costs to potential and also strategic value. And this is an area where we are clearly looking into.

Finally to something you maybe have only an indirect impact on, but I was a little bit disappointed or disappointed maybe a little bit sad that Jean-Michel Richard will not move on as Head of Supervisory Board. Any comments on this because he is a specialist in semi space and you know maybe what's coming. Maybe 1 or 2 comments, why not maybe move on with this activity and maybe 1 or 2 words to the lady, which follows him on, which is not maybe so well known in the investment community.

Of course, I mean, I have no direct say in how our Supervisory Board is composed. But it was clear that Jean-Michel is up for reelection at the next general meeting. It was also clear that we have a new anchor investor, who rightfully wants to have, of course, a seat in the Supervisory Board. And for that reason, we said Jean-Michel did great contributions, but change is a constant in life. He is anyway up for reelection. Let's get a new guy in and switch to Alexa. Alexa is already part of the Board for 2 years now. So she knows the company very well. Very sharp strategic thinker as well, knows everything about finance, about M&A. So I'm absolutely happy with her as the new Chair of the Supervisory Board. And I think with the new composition, we have all the competencies in the Supervisory Board to guide the company, right?

Okay. Final question came just from my head. currency impact. Everybody expected at the beginning of the year that the dollar gets strong, and now we have exactly the opposite. Remind us what is the impact and at what euro-dollar basis you have built your forecast?

I've been waiting to give that answer for half a year. I think that's a great question for our CFO.

Yes. I mean in the quarter 1, it was a very minor impact. I think the base where we build up our planning is really with a strong euro, it's roughly about 110. We're right now observing the development in the next quarters about this exchange rate impact. I would not -- I mean, the volatility what we had saw in the quarter 1 from really going down and expecting, oh my God, oh my God, now going up. I think we're right now evaluating the situation and we'll decide in the next weeks exactly how we are acting on this. But we are roughly in the middle right now in our planning and our structure with the dollar 110.

The weaker dollar is not -- a strong dollar would be better than a weaker from a direction.

Yes.

The next question comes from Robert-Jan van der Horst.

So I was wondering about the development you anticipate in the second half of the year and what's driving that? Because if I look at the Q2 guidance and the full year guidance, even if you reach the upper end in the second quarter in terms of -- regarding both sales and EBIT, we will still have a slightly negative adjusted EBIT. So to come to the 6% for the full year, I think you might expect increasing profitability. And I was just wondering, first of all, which segments will drive that change? And secondly, do you expect that already to become very visible in the third quarter? Or do you expect, especially because Solar's orders came later to be just as last year, very Q4 heavy, especially in terms of EBIT contribution?

Happy to answer that, Robert-Jan. So basically, when I look at our guidance Q2, for cautiousness reason due to the tariffs, I pushed several of the EQ business out a little bit further into Q3, but definitely not into Q4. So that's part of our display shipments to Korea, also part of our business that we have in the SMT sector. But it will still be a reasonably strong Q2 because we have a good backlog here. When I look at SQ, yes, we need 2 China deals to basically stay the course here. As you know, we made a change in our way of operating in solar last year. We modularized our R&D. This makes us a lot more nimble, which was the goal to respond to a PO and ship it fast. So we can still get that into Q3 that we don't have it too much loaded into Q4. For further LIDE business in EQ, yes, a good chunk will be in Q4. And we are working on at least not getting it to the later part of Q4 to minimize the usual spillover risks. And when I look at Welding, Welding will have a strong Q2 and Q3 due to the consumer electronics business. We expect that, but this is still backlog to be won that we will also have an equally strong Q4 because that's our usual seasonality, but that is projection because usually the outlook for PO to revenue recognition isn't that long in Welding. So that's roughly how things are composed. And...

And Klaus, I'd like to add our enhancement program, several setup in measurements and one -- a couple of measurements will have a ramp-up an impact in the quarter 3 and quarter 4. This is the nature, for example, when there was a lot of activity started about material improvement, price improvement. And there until they have an impact into the product and into the sales, it is Q3, Q4. There will be a ramp-up in the second half year and impact the profitability out of this program.

Okay. Perfect. If I can just follow up on that. Do you have an idea where you want your breakeven to be? I think on a quarterly basis, it should be around like EUR 30 million right now. So what's kind of the goal or how much costs do you think you can reduce in the remainder of the year? And maybe a follow-up, looking at that and looking at the 0.5% to 1.5% of revenue you want to use for restructuring this year, do you think that the measures will be finalized by the end of the year? Or will this cost-cutting project kind of continue also into 2026?

Peter, do you want to take? Shall I take it?

I start. I start with the last one. I mean, I'm new on board, 30 days. I can tell you this enhancement program will get another push from my side. I see that there will be additional potential. And my personal opinion, we need to exceed and to bring this program even in midterm aspiration, as I call it, really, we need to optimize process improvements, getting faster, getting more efficient. This will have a potential impact in the end of the year, but it will go further in '26. Therefore, we need to get a put in this to really to gain more potential out of this. For the breakeven, I think it's not a question because due to the cost improvement, the breakeven goes down towards the end of the year. Therefore, I would rather give a range that it is between -- depends on between EUR 30 million and EUR 33 million. That would be my range right now based on my analysis I did so far. But we need to push this enhancement program into 2026 to really get the cost down and the competitiveness up, I always call it. Klaus, do you want to add something?

No, I think you summarized it very nice. So with the measures we implemented so far, our breakeven is already below 120. And there are, let's say, structural measures we are evaluating Peter and me together at the moment where we say, look, we need a real structural boost further on in cost, structure that we have without ever, let's say, threatening our ability to be a first mover with disruptive innovation. Peter is on board now for 4 weeks. So he's already very fast, but this is something we will shape out over the coming weeks. And then when we say, yes, it's workable, yes, we want to do that, bring it into action. I expect that we deliver everything we have in our planning on savings, which keeps us steady and in a breakeven below 120. But I also expect that we are able to load up more beyond it, significantly more. If it will be visible in the bottom line of '25 already or if it will be something that strengthens us in '26, that is something we both got to shape out together.

The next question comes from Lukas Spang.

Just one follow-up question regarding Q1 because when you released the Q1 guidance end of March, Q1 was nearly over, and I was a little bit wondering why you then just reached only the lower end of the revenue and earnings guidance. And therefore, I'm just curious if there were some pushouts from Q1 to Q2.

No, not really. One difference we had, and it's a pure accounting effect from Q1 originally planned to revenue recognition was we have this one highly confidential large semiconductor project, as you know. We didn't talk about it, I think, in '23. And just by accounting rules, we changed the way of revenue recognition for that project, which had an impact purely from a revenue recognition point of view, from an accounting point of view on Q1, and that was a delta to the original planning for that one. Otherwise, what we really put in revenue recognition from operational business now, not counting this accounting effect is pretty much exactly what we set ourselves as an ambition when we finished the plan in Q4 '24.

And this is now increasing Q2 revenues? Or how should we think about that?

It's basically spreading out over the whole time of the project. So there's no change in revenue recognition there, but it has a different distribution over the individual quarters. That's what's behind it. So nothing operational. It's an accounting thing.

Are there any further questions? I can't see any hand signals and there is nothing in the chat. So there don't seem to be any further questions at the moment. In that case, I would thank you all very much for joining this call, and the next regular conference call will already take place on July 24 at the release of our Q2 report. So thank you very much, and goodbye.

Thank you very much also from my side and maybe see a couple of you at our shareholders' meeting in June. Thank you, everybody. Bye-bye.