Melexis NV ($MELE)

Welcome, everyone, joining us today for the Melexis First Quarter 2026 Earnings Call. I am Philip Ludwig, Investor Relations Director. And with us today are our CEO, Marc Biron; and CFO, Karen Van Griensven. Earlier today, we published our press release and presentation, which can be found on our website. We will start the call with some brief remarks before taking questions, starting with Marc Biron. Marc, the floor is yours.

Thank you, Philip. Hello, everyone, and welcome to this earnings call. I will share some highlights about our business performance and strategic progress, and then our CFO, Karen Van Griensven, will provide the financial overview and outlook. The results of our first quarter were fully in line with our expectations, taking into account the seasonal factor like the Chinese New Year and the changes of the automotive incentive schemes. Importantly, our profitability grew already in the first quarter, driven by our operational improvements and disciplined cost control. We recorded a 2% increase in sales year-over-year, which put us on track to achieve our first half '26 sales outlook. Automotive applications have represented 89% of our total sales this quarter. Our solutions continue to fully capture the structural growth trends of electrification, ADAS and premiumization. For example, we are growing multiple opportunities in thermal management with our pressure sensor and motor drivers. Triphibian, a world premier launch in '24, provides accurate and robust pressure sensor technology, which enable EV range extension by optimizing battery performance. Furthermore, we are seeing increased opportunities in ADAS as the industry continues its structural shift towards steer-by-wire and brake-by-wire architecture. Those are safety critical applications, which fit perfectly with our portfolio of inductive and magnetic position sensors. Outside of automotive, we have introduced 2 more new products this quarter. The first one is a new motor driver designed for cooling fans, which are used in servers and data centers. We have also launched a high-precision inductive position sensor tailored for the operation of mechanical joints in robots. Combined with our unique Tactaxis technology, which provides a sense of touch to the robot, we are accelerating the development of physical AI. Last week, we were proud to join the Hannover Messe with our customer OYMotion to demonstrate how we are working together to integrate our Tactaxis finger module into the next-gen robotic hands. This is a critical step to deliver the human-like dexterity needed to bridge the gap between physical AI hardware and intelligent touch. In Q1, we have posted visible progress in our strategic objectives. We have strengthened our presence in China by establishing a fully foreign-owned enterprise. This roofing is a pivotal step in our localization strategy, providing the foundation for end-to-end supply chain. Shortly following the launch of our integrated snubber at the end of last year, we have already received an innovation award from one of our top Chinese customers. This expansion of our product portfolio open up new power module customers and capture growing 800-volt application in autos and in energy storage systems. Last but not least, we have achieved an important milestone with one of our top Chinese OEM customers as we have been recently recognized as a direct supplier, confirming our very good relationship with them. I will now hand it over to Karen to comment on our financials.

Thank you, Marc, and hello, everybody. So the sales for the first quarter were EUR 202.1 million and the euro-U.S. dollar exchange rate evolution had a negative impact of 4% on sales compared to the same quarter last year, but no impact compared to the previous quarter. The gross result was EUR 80.6 million, representing a gross profit margin of 39.9% and this is a 7% increase in gross results compared to Q1 of last year, demonstrating the recovery from cost of yield improvements as anticipated and ongoing cost control actions on top of that. Operating expenses remained controlled with R&D at 14.5% of sales. G&A was 6.8% and selling expenses were 2.2%. This led to an EBIT of EUR 33.2 million or 16.4% of sales, a 14% increase year-over-year. The net result was EUR 23.1 million or EUR 0.57 per share. Looking ahead now. So turning to our outlook. Melexis confirms its guidance. We expect sales in the first half of 2026 to be around the same level as the previous year and we expect sales in the second half of 2026 to grow compared to the first half. And for the first half of 2026, we expect a gross profit margin around 40% and an operating margin around 17%. So no change in guidance. And this is taking into account the euro-U.S. dollar exchange rate of USD 1.17. For the full year 2026, we expect CapEx to be around EUR 40 million. And this concludes my remarks.

Thank you, Karen and Marc. For the Q&A session now, thank you for asking one question and one follow-up at a time to allow everybody to put their question. If you have more questions, of course you can rejoin the queue. Now I'd like to ask the operator to give the instructions for the Q&A. Operator?

[Operator instructions] The first question comes from Janardan Menon from Jefferies.

I just wanted to get an idea of how you're seeing customer ordering behavior on the automotive side. Are customers beginning to look a little bit more confident? Are they giving you more visibility on to the second half of the year? And if you could just answer that separately for Chinese demand versus outside China, that would be great.

Yes. Thank you for the question. Yes, 1 quarter ago, 3 months ago, we have indeed mentioned that our customers have informed us that the second half of the year will be better than the first half. And I would say this is indeed confirmed in the order intake. We see clearly order intake improving week after week, day after day. And to come back on your specific question on China, I would say the order intake is increasing in all geographies. But for sure, in China also, we have also discussion with our distributor that also have, let's say, a positive sentiment.

So last year, you did about 5% growth half-on-half. Do you think you could do a little bit more than that this year? Or is that visibility not yet there at this point in time?

I would say we are more confident now than 3 months ago because we have a better visibility for Q2 and Q3. But we don't want to give, let's say, a clear -- a concrete guidance for the second half because of all the uncertainties around us. But clearly, we have a better visibility now than 3 months ago.

Understood. And just a brief follow-up to Karen, perhaps. How do you expect your inventory levels to move in the second half through Q2, Q3, Q4?

The inventory level of Melexis, they came down a little bit recently. We expect throughout the year, difficult to say, but stabilize by the end of the year, there might still be some increase. It will depend a bit also on the behavior we see in the market because, yes, we mentioned it already in previous quarters, there are some signs of shortage that is also impacting automotive due to the high growth in other areas like servers, AI servers, but it is impacting automotive as well.

The next question comes from Aleksander Peterc from Bernstein.

I just have 2. The first one is just Melexis versus the broad sector context and the second one more specifically on China. So for the first question, we've seen a very broad-based beat and raise in this quarter across the sector and particularly among your analog and discrete peers, including Texas, STM, NXP. So could you give us the main reasons why your in line quarter and just reiterated guidance with still seemingly low visibility on second half versus first half, why is that lagging so much the more constructive narrative in your peer group? And then I have a follow-up.

I think if you compare with our peers, we are very automotive-focused in our case. I can repeat what I have answered before. We really see a better order intake from our customers. We have also a good discussion with the distributor also in China. And this is indeed showing a positive trend. But given all the uncertainties, we don't want to give a concrete guidance. But as I mentioned before, we have better visibility in Q2 and Q3, which give us more confidence.

Okay. That's clear. And the second question now on China. So I see the formalization of your wholly foreign-owned enterprise in Shanghai as a positive step. But I see also your APAC revenue that is down to 60% of the mix versus 64% last year. So is that due to any specific price pressure? Or is it just the way your product cycle works in China? And do you actually see any pressure to lower prices to maintain the volumes there?

We see since some quarter that we have in China, a good quarter followed by a less good quarter and there is this alternative good and bad quarter since a while. From my perspective, we are now going out of this alternative pattern because it really seems that the customers are more confident. Also the inventory is very low in China. We see that we are gaining some business in China also. As I mentioned, the order intake is good everywhere and also good in China. And I do believe that this alternating pattern will stop probably in the future. Yes, indeed, there is no structural reason.

The next question is coming from Guy Sips from KBC Securities.

Some of my questions are already answered, but I want to focus a little bit on the nonautomotive part. From what moment on can we expect, let's say, a structural pickup? Is that already starting this year? Or do you expect that only to start in, let's say, 2027 or beyond?

Yes. I assume you refer mainly to the robotics, where we have indeed a lot of activity. I would summarize the situation as follows. I would say, in 2025 and 2026, we are working a lot to create opportunities with customers to support the customer to grow the funnel of opportunity. I would say, in '27, '28, we will see that the revenue is growing and customer will be in ramp-up and the volume will increase. And after 2028, it will be very visible, let's say, in the figures of Melexis. Are you clear?

Can you -- yes, can you quantify that a little bit? What do you mean with very visible that the nonautomotive part will structurally below -- or the nonautomotive part will be structurally above 25% of total sales? Or can you quantify that a little bit?

To reach 25% of total sales, it will take a while. I think it will be somewhere in 2030 according to our outlook.

The next question is coming from Amelia Banks from Bank of America.

My first question is on gross margins, which stepped up 150 bps quarter-on-quarter. Could you walk us through the key drivers of the improvement? And if possible, quantify the contribution from cost of yield pricing and any inventory revaluations or one-offs? And additionally, how do you see this shaping out in H2 and beyond?

Yes. The main contributor is definitely cost of yield. It is compensated by some negative effect from price erosion and also increase of, for instance, gold price. But yes, that cost of yield improvement is there -- structural is there to stay.

Okay. Brilliant. And just in terms of inventory revaluation, we saw that inventory step down a bit quarter-on-quarter. Just how much did that come into the gross margins?

Yes. The step-down is indeed mainly due to revaluation less because of volume, the inventory decrease. The impact today is still limited, but I mean it has a negative effect today, probably for another couple of quarters and then we will see a positive effect.

Okay. Brilliant. And just my second question is on the new products that we saw in 1Q, the servers and robotics. Just wondering if you could share sort of where you are in the ramp for these? Are you in volume production? Or is it more in the sampling sort of qualification stage? And secondly, how would you characterize your competitive position in these markets today?

The new products that we have launched in Q1 are indeed in the beginning of the funnel opportunities that they don't create yet revenue, but they are at customer and we use them to promote them at customer, and then they will start the characterization and the qualification phase. It is correct that those 2 products, one is more related to robotics. The other one is more related to data center that both have a big traction to our customers. I think we have really been able to solve an unmet need at the customer. But yes, the business increase takes time because of the characterization, qualification phase, ramp-up and so on.

Next question is coming from Francois Bouvignies from UBS.

I just wanted to come back on your H1 comments when you said it's flat versus last year. And when I look at Q1, I mean, at constant currency, you are growing 6% year-on-year. And so if I put flat in H1, that would imply that the growth is lower year-on-year in Q2, which is a bit at odds against what we see from peers. We see a gradual recovery across industrial and automotive. So can you explain why your growth year-on-year would be lower in Q2 versus Q1? That's my first question.

Yes. I think we see also a gradual recovery, as I have mentioned. I think the order book is indeed moving positively in Q2 and also in Q3.

But is there any reason why the growth would be lower? I mean the year-on-year growth is declining in Q2, if we take your guidance or maybe you are just conservative in H1?

I think we mentioned that indeed the H1 of '26 will be similar to H1 of '25. Okay. Similar means that it could be a bit above or the same. I mean similar must be taken in the broad sense, let's say.

Okay. And maybe we see some cost inflation across the industry and we have seen as well some peers increasing pricing, also some tightness of products. I mean, how do you see your pricing here? Because I guess you don't have much data center exposure. Automotive, we don't see yet on the automotive side some pricing increase, but we do see some inflation across the board. So how should we think about your pricing strategy through the year?

We have just, I would say, 3 months ago, we have finalized all the price discussion with our customers and we want to acknowledge the good relationship with our customers. It means that for the time being, we don't plan to change the price to our customer. As I mentioned...

Even if you have the cost inflation?

Sorry?

Even if you have the cost inflation? I mean, if you were -- so that would be at the expense of your gross margin?

For the time being, as Karen mentioned, we are making very good improvement on the cost base, let's say, on the cost of the supply chain, the cost of yield and so on. Then I would say we have some headroom in case of.

The next question is coming from Robert Sanders from Deutsche Bank.

If I compare your sort of revenue trajectory in the last couple of years with Elmos, they clearly outperformed you both in lighting, but also because they have less position in the powertrain, they're more stronger in the ADAS L2+. So can you remind us of your position in ADAS L2+ given that, that seems to be a bit more of a reliable growth vector at the moment within automotive? And I have a couple of follow-ups.

If we consider, let's say, the number of opportunities and how the opportunities are moving up in the funnel, the 2 main growing opportunities are brake-by-wire and steer-by-wire, which is indeed an ADAS application. And we see that we have a very good traction for those applications. And I confirm that we are well positioned and it's one of the growing opportunities in our funnel.

And the same is true for thermal management.

Yes. The other one, indeed, Karen, thank you. The other one is thermal management, okay, which is not ADAS, but it's for sure powertrain electrification. This is the second family of products that are growing fast in our funnel.

And the products behind are mainly position sensors and drivers. These are products that are in general sold at a very broad customer base, so are much less inclined to fluctuate a lot.

Yes. And those are -- at least the brake-by-wire or the steer-by-wire are critical application in terms of safety. And it's why our projects are well positioned because of our experience in those critical applications.

And it's that same expertise we leverage now in the robotics.

Got it. Can you just comment a bit on your lighting business? I mean, other vendors have talked about there being quite brutal price pressure. If I just look at your underperformance in the last couple of years, it does look like there's been much greater price pressure in that business where you had success. I mean, can you confirm that? And going forward, could you get that -- the margin in that business back to historical levels? Or is it just going to be a bit more of a difficult market for you guys?

No, the lighting business is indeed a business with price pressure. It's, yes, everywhere, but also in China. It is why those are those products that we have diversified the wafer fab supply chain in order to be able to compete with the new price in the market. It's also those products that we have developed an OSAT in China where we assemble and test in China. Those are those products that are processed in this OSAT also for the same reason because of the price pressure. And we have focused indeed an alternative supply chain for this lighting products in order to be able to compete in the market.

But does that mean then X-FAB will license the 0.11 micron SOI technology to Wuhan or someone in China? I mean, because isn't that a business you traditionally were using SOI?

I mean, this is a question for X-FAB, not for Melexis. But the lighting product that we develop in another supply chain is not using the SOI technology. [Indiscernible].

The next question is coming from Marc Hesselink from ING.

First question, coming back on the inventory. I think throughout '24 and '25, you have been building up this inventory in preparation for stronger quarters to come. Now you see a small decline. I think you just said that was because of revaluations, but at least it was the first time we see a bit of a decline. Is that because you think the inventory is now at the right level? Or are you also anticipating maybe a bit of a different trajectory in the recovery there?

No, probably it will increase throughout the year again to anticipate also, yes, the potential allocation issues that might arise. So I see it rather going up than down in the current circumstances.

Clear. And then I also want to come back on robotics, the press release that you sent out on the OYMotion joint venture work together. Can you give a bit more detail on how this is going to work? You're providing the sensor, obviously. I think at an earlier stage at the Capital Markets Day, you also discussed maybe you would make the full module yourself. Is that now out of the way? Is that going to be done by your partner? And how are you going to market the product by the clients? It seems interesting, but maybe a bit more detail there.

Yes, indeed, OYMotion provides the full robotic hand and Melexis provide, let's say, part of the fingers, what you call the fingertip, which is, let's say, the top part of the fingers. In this top part of the fingers, we have our Tactaxis technology. We have the magnet and we have all the plastic, let's say, around. And the idea is that, yes, this top of the fingers provided by Melexis can be inserted on the finger of OYMotion. It's really a module, a fingertip module that we provide.

Customized module.

And in fact, today, we see that the different robotic customers have different requirements in terms of finger or in terms of hand. You have some hand with thick fingers, some hand with thin finger. I mean, the fingers are not standardized. It means that we are standardizing also our fingertip module in order to match, let's say, the shape of the hand. This OYMotion is one example. We have multiple customers. That's why we need indeed to shape this fingertip depending on the customer. I was in China in January. And at this time, we were, let's say, supporting 60 customers. I was again in China in March. And at this time, we were supporting 80 customers and the number of customers keep increasing.

The next question is coming from Javier Correonero from Morningstar Equity Research.

I have another one about the OYMotion partnership. So I'm trying to figure out how much Tactaxis content one of these robotic hands could have. And from the pictures in your website and in OYMotion website, I understand it could be 1 to 2 sensors per finger. Is this correct? And my second question is, what is the average selling price of a Tactaxis sensor? Or if you cannot disclose the exact number, can you give us an indication of what the price is compared to the average -- sorry, to the average automotive sensor?

Yes. For the number of sensors per fingers, it depends on the fingers, but it's between 1 and 3. On the middle fingers, the 3 middle fingers, it's 3. On the 2 extreme fingers or edge fingers, it's 1 or 2 depending on the hand. And yes, from a price perspective, yes, we cannot give indication because also we are in a unmature market. And for sure, the price will go down in the future. But I mean, what is important to understand, we provide much more than a chip. The regular Melexis business is to provide an IC. In this case, we really provide a module with a chip, with a magnet, with some mold compound and on top of that, all the plastic of the module. And this is not the same kind of high spec.

The next question is coming from Ruben Devos from Kepler Cheuvreux.

Still on robotics. I think you just talked about the 80 projects underway, particularly in China. I think in the last call, it was about 60. Just curious whether you could break that down a bit more in terms of where all these projects actually sits, right? Like what proportion of that would be, let's say, early stage or evaluations? What portion might be for design wins? And what might be actual be close to production at this stage?

In 2025, last year we had already some design wins and we have some of the products are really in design win. And for the rest, it's really difficult to answer in accurate way the question because there is indeed project everywhere in the funnel. I can say that we have already booked some design win. And as I mentioned, I do believe that in '25, '26, we will continue to move the product in the funnel and the real revenue will start in '27 and '28. It's difficult to give a more accurate answer because there is really product everywhere in the opportunity funnel.

Yes. And then maybe more specific then, referring to that significant inductive position sensor design win. Could you maybe give there a bit more detail on timing and scale?

We have, I would say, for the time being, we have 3 main type of products using robotics, the position sensor that can be inductive or magnetic. It's to measure the position of the joint. This is the first type of product. The second type of product is the drivers in order to actuate the joint. And we can actuate the big joint of the arm or the big joint of the leg, but we can also actuate the small joint in the hand. If you look at the robotic hand from OYMotion, you see that there is all the hand -- all the fingers can be moved. And in all those fingers, there is a driver and the position sensor. And then the third category of product is the Tactaxis is then to give the sense of touch of those products. To answer your question, indeed, one of the first design win was the inductive sensor for the joint of the robot. On this one, we have regular order and the production are ramping up. We have also design win for the drivers and the production will start and the revenue will start to increase towards the end of this year. And for the tactile sensor, yes, we are still in the characterization qualification to our customers.

All right. And just a final question, maybe for Karen. I think it was said that pricing in '26 would be broadly flat with mix sort of offsetting price pressure. Just curious, 3 months into the year, is that still playing out as expected? And maybe which product lines are actually driving that mix benefit today?

So yes, there is obviously the price erosion. There is the mix effect. Yes, there is a compensation partially, I wouldn't say completely of the mix effect on the average selling price. That's correct. Difficult to know exactly where that will end because some products indeed like the drivers, also some position sensors, they help in the mix. So if they grow faster than others, that will improve that effect.

We have now a follow-up question from Janardan Menon from Jefferies.

I was just wanting to follow up on Karen's comment that inventories will probably rise because you think there could be allocation down the line and you want to be prepared for that. I was just wondering, are you seeing any tightness in any of your product lines? And if so, which product line? And is that an X-FAB situation? Or what makes you think that your product specifically because I understand there is tightness outside, but given that your production is predominantly coming out of X-FAB, what makes you think that you could be on allocation in the medium term?

Today, the worries are mostly on the assembly and also our internal test. Most of the inventory we have is in wafers, but they are not packaged, they are not tested. So that is today the first worry, but it doesn't exclude that, yes, also sooner or later, wafers might be a concern, but it is not our main concern today. It's mainly test and assembly.

And this is test and assembly at, let's say, some of your Malaysian subcontractors or companies like that basically?

Indeed. And test could be internally.

Are you already tight on the subcontractors today? Are you seeing extension of lead times?

No. No, but it's something we are monitoring closely.

And we have the next follow-up question from Marc Hesselink from ING.

Looking at the tax, I think for a very long time, always had like 15% to 20% tax. And now in the last quarter, you're trending towards the top end of that. Is there something that changed? Or you just had a bit of timing that the last 3 quarters you were towards the high end of that range?

Yes, it can fluctuate from quarter-to-quarter, but structurally, it's -- we always said it will be between 15% and 20% and we expect it to be rather closer to 15% than 20%. But there can be variations from quarter-on-quarter.

There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks.

Thank you, operator. In summary, we have delivered a first quarter in line with our expectations and we confirm our first half year guidance. We are systematically implementing our China strategy to remain a leading provider of critical sensors and driver solutions increasingly via our local supply chain. And as a group, we continue to launch a record number of new products, creating traction with customers for automotive and nonautomotive applications. Thank you for joining our call today and we look forward to sharing our progress with you when we report on our second quarter on July 29. Goodbye, and thank you.

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