Mycronic AB (publ) (MYCR) Earnings Call Transcript & Summary

Hello, and welcome to the presentation of Mycronic's Q2 report. My name is Sven Chetkovich. I'm the Director, Investor Relations at Mycronic. And with me, I have Mycronic's CEO, Anders Lindqvist; and CFO, Pierre Brorsson, who will be presenting today. And with that, I hand over to Anders. Please go ahead and present Mycronic's Q2 report.

Thank you, Sven, and good morning, everyone. So today, we have the standard agenda. So talk about the Q2 in general in short, go deeper in the different divisions. Pierre will talk about the financials, some words on sustainability, and then we end the session with a question-and-answer session. And as usual, in the material that is on the website, you also have the market update, which we will not present, but it's there for information. So just to summarize the second quarter, it was an excellent quarter, really, many records in different ways. So we had a record order intake, up 119%, but also the level is very high at SEK 2.9 billion. So we have never been higher. And what is very nice to see is that we have contributions from all the different divisions, very much from Global Technologies, you will see, but also very strong development in High Volume and Pattern Generators. And Pattern Generators is compared to a quite weak quarter 2 last year, but still a decent level. Also very nice to see is that sales is also picking up, so not only orders alone that second best level up to SEK 2.4 billion, very much from Global Technologies in that increase. Very strong gross margin at 57% and also very strong EBIT at close to SEK 700 million, corresponding to 29%. So because of strong order intake, of course, we could see that the backlog have increased to SEK 5.25 billion, which is quite a good level for us to have. So going a little bit more in detail on the different divisions, starting with Pattern Generators. So percentage-wise, it looks like we had a super order intake with 253%. But last year, quarter 2 was very weak, where we had no system orders at all actually. So the level we reached now is 625 million, which is a decent level, but compared to a weak quarter, a lot of percent, of course. We had 4 different SLX on orders in the quarter, 3 normal machines. And then we had this one customized SLX that we announced already last quarter, which is a one-off project with a very high sales price, almost $30 million on that one. Sales a little bit down to SEK 900 million, and this is positively impacted by the Cowin acquisition by SEK 26 million. Strong gross margin at 72%, EBIT close to SEK 500 million, where we had a negative impact from Covin acquisition of minus SEK 14 million and overall, an EBIT margin of 53%, which is quite nice order backlog of SEK 1.7 billion, and we have 13 systems now in the backlog as of end of the quarter. So quite solid basic. PCB Assembly Solutions. So here, we have both ever taken in the quarter and both of them coming from the defense industry. So very strong orders. And this is -- has resulted in a record order intake of SEK 444 million. At the same time, you can still that we continue to make a loss. We had a sales of SEK 303 million and a gross margin of 37%, but still we had a negative EBIT of SEK 44 million. And in that SEK 44 million, there is a restructuring cost of SEK 39 million. But even taking that out, we're still negative on the EBIT. And this is also why we now have started a restructuring program where we want to bring the EBIT margin back above 10%, and this should happen latest by next year at current volumes. So make PCB Assembly Solutions great again really. High volume, very strong demand. here as well, which you can see very much coming from the Chinese consumer electronics industry that has started to invest a lot in launching new products, but also markets outside of China. And we can also see in this division that we're having a positive impact from opportunities when it comes to building up AI infrastructure, where we have sold the dispensing solutions to server assemblies and final assembly of optical modules. Strong order intake, almost SEK 700 million, up 82%. Sales, a little bit less up SEK 513 million. very strong gross margin at 44% and EBIT SEK 68 million, which is equal to 13%. And here, we have a financial impact of ESOP of minus SEK 24 million as well included in that number. So strong backlog at close to SEK 1.2 billion. So very good performance from higher volume. The best performance of all the divisions we have in Global Technologies. We can see that especially in the PCB test and die bonding, but very good contributions from the other businesses as well in this division. So order intake up above SEK 1 billion for the first time, SEK 1111, so SEK 1.11 billion, which is 176% up. Sales also very good to see that this is following. up to NOK 700 million that we don't only build backlog, but also building up the delivery capacity. We have a small positive impact from acquisitions of Surfx and the German company, EDZ of NOK 31 million, but nevertheless, very strong sales increase in gross margin, super strong at 56% and EBIT up to SEK 250 million, which is a very strong pickup from the same quarter last year. Small impact of the different acquisitions. We have still some noise from acquisitions in here. So negative from Surfx and EDZ, but also positive impact of an earn-out that was reversed in Surfex that was SEK 14 million. So all that together means a very strong EBIT margin at 36% and an increase of backlog to NOK 2.1 billion. So I think we can start to see that Global Technologies start to have quite a meaningful contribution to the group numbers. And all that, the strong momentum we have right now in the business, we have a very little bit of currency also in our favor right now has made us to revise the outlook for the full year, and we revised that up NOK 0.5 billion to NOK 9.25 billion to reach that by the end of the year. So with that, I will hand over to Pierre Brorsson.

Thank you so much, Anders, and I will take you through a bit the graphical look on the numbers. We increased year-on-year with 17% on an already quite good quarter last year, up to the second best level at SEK 2.4 billion in the quarter. And we also had another record when it comes to aftermarket revenue, which was SEK 544 million, just above what we had in Q1 2025. Our EBIT margin on a high level, close to 30% at 29%, which is not a record, but still very, very strong. If we look where we stand on a rolling 12-month basis, we have now reached SEK 8.65 billion with an EBIT margin at a solid 26% after 2 strong quarters starting this year. The aftermarket revenue crossed the line of SEK 2 billion for the first time, and that corresponds now to 24% of our net sales, and this is something that we put strong emphasis on. If we look at the quarter-on-quarter and where did the result improvement come from, it was all in the gross margin. It was both improved gross margin, which we have had in Global Technologies as well as in High Volume. And then we had a volume effect on top of that. On the cost side, we continue to invest both in building the organizational footprint globally in various parts of the divisions, and we continue to invest in technology. And this is -- the technology investments in R&D is this quarter more broad-based than before. So in 3 of the divisions, we have continued to increase the spend distinctly. So Pattern Generators, High Volume and Global Technologies. On the PCB assembly, we have a more moderate level of spend in the R&D side at the moment. Marketing and sales and G&A, we continue to build and expand the footprint. There is a little bit of acquisition effect in these numbers as well, but we continue to expand and take advantage of the strong positions that we have, ending the quarter at SEK 698 million or 29% -- if we compare in the other direction and look division by division, you can see that all the improvement actually came from Global Technologies. In the quarter, Pattern Generators had a strong comparison in the same quarter last year. In PCB Assembly Solutions, as Anders mentioned, we have SEK 39 million of exceptional costs for restructuring. High volume, good quarter and also loaded with the ESOP costs this year. So actually underlying an improvement. Strong development in Global Technologies, and that took us then back to the SEK 698 million that we have reported. Cash flow. We have a strong result, which, of course, is very supportive to the cash flow as well. The growth that we have is causing a bit negative impact on the working capital, even if the effect was even bigger during last year, where we also started the year strong, but a little bit of cash impact there. On the investment side, we have relatively moderate acquisitions. It is at and Cowin that we have invested in this year. We have also invested a little bit more in our organization that we would normally or historically have done. Among other things, we are investing in Terbinafor the PG and PA divisions. On the financing activity side, we had the dividend is the majority of that, and that takes us to cash at the end of the period of SEK 2.7 billion or a net cash position of SEK 2.3 billion. And with that quick walk-through of the numbers, I hand the word back to Anders again.

Thank you, Pierre. We move over to sustainability and different topics each time. So this 1 with a min on the transportation, which is today, 7% of our greenhouse gas emissions for Mycronic. And we're doing efforts to reduce the emissions by inching transportation load. Many of our equipment are transported by air freight, which try to the largest extent possible to move that into sea freight. So on pattern generators, we have started to ship spare parts to Asia by sea. We have also improved the flows from PCB assembly solutions between China and Sweden and shifting from air to sea transport and also Global Technologies on the Photonics interconnect business line, we also are starting doing sea freight for equipment going to the U.S. Of course, sea freight instead of air freight requires a little bit more on the packaging to protect equipment but also in terms of planning and so on because it takes a longer time, but we are in a good position to do that. And those initiatives which is very much in a close collaboration, both with the customers, but also with our suppliers. We're all on the same line, are contributing to reduce our emissions across the total wall chain, so quite important steps here. So that was the end of the normal presentation. Now we can move into question and answers, Sven.

Thank you, Anders, and thank you, Pierre. And yes, now we are moving over to the Q&A session, and we start with Ina Djupsund at SEB. Ina, please go ahead and ask your questions.

I wanted to start by asking on your raised outlook in here for '26 and if you could give some flavor on the kind of main drivers behind this and where the kind of positive built for '26 is coming from? And then a second, you previously indicated that you're kind of fully booked within PCB test for 2026. We able to increase delivery capacity here and what can you say about kind of current utilization and potential expansion plans?

SP1 So if I take the first 1 with the increased outlook. We have seen very good demand in high volume. You can say that it's basically 1/3, 1/3, 1/3. We have increased demand in high volume. We have also further increased demand in the Global Technologies. And then it's, in particular, the infrastructure-related products, the die bonding to some degree, PCB test. And the third 1 is, of course, the currency has a certain impact as well. So basically, these 3 buckets a little bit similar in size compared to prior quarters.

Yes. And then it was the question about the delivery capacity in PCB test, I think, in particular. And -- it is -- I think we announced already before that we're doing an expansion of the production facility, which is not yet there, but it will be end of this year, I think it is planned for -- but already, we are doing improvement in the total supply chain. So it's not only the factory floor space that is kind of impacting the delivery capacity. It's also the whole supply chain with sub-suppliers and so on. And can see that also the revenue numbers are picking up in that business. So we are able to deliver more -- also improve the current situation a little bit, but the order intake is even stronger. So it means that the long lead time remains long. It's more than 1.5 years. Right now, it depends on equipment, of course, also. But we are super cautious. We have quite large down payment parts in the contract. And so really to safeguard that we don't -- will suffer for any cancellations or speculations in this backlog. But then it looks looks quite good, but we are better and better on deliveries. So it's also good for the revenues, which is visible, I think.

And then EBIT was super strong in Global Tech here in Q2. How sustainable would you say this level of profitabilities for the whole division?

I think it's a good question. I think this 36% that we delivered in the quarter is a little bit on the high side. But if you want to have direction, I think for now, I think we will be able to be on the 30% mark. I think that's a level where we are at with this strong demand and good [indiscernible] that we have.

Thank you, Ina. And now over to London and Oliver Wong at Bank of America. Please go ahead and ask your question.

I hope you can hear me. Yes. I was wondering for -- maybe for pattern generators, I think the revenues in the quarter exceeded expectations quite a bit. So I was wondering if there's any anything flagged there? Any one-offs in terms of revenue? And also just an update general on kind of the trends in terms of underlying demand for display mask writers for China semi mass providers from non-China semi mass providers would be super helpful.

No. So there's nothing extraordinary quarter. I think we delivered according to plan. I think it was 5 systems. Sand that we live that was planned. And also, I think according to what we have in the previous reports also on what should be delivered when and so on and so, that was just following that. On the market situation, starting with the display. So we have had a little bit or still have a little bit lower than normal, I would say, order intake on the display side, which I think is kind of normal, we have those cycles normally coming up and down. And also, the replacement programs goes a little bit in cycles as the generations shift a little bit at the time. So I think I think we're a little bit lower than normal, and we should expect that to pick up, but difficult to say when really. But this is -- there is nothing in the market that has changed actually. We can see that the display manufacturers and the demand is still high, and we can all see that there is a lot of technology development on the display side. I can -- an example is this, if you look at well phone, they're starting out to have integrated privacy filters into the display. That drives mask demand quite significantly actually. So that is innovations like that are in -- is to our favor really. On the semi side, it's holding up surprisingly good. We thought it -- I think we said it before that China bought a lot in the past and maybe a little bit less now. But can actually see that, I think demand in China is still strong and then could even be even bigger. So I think China will be moving quite ahead on the semi side and as do the rest of the world as well, of course, with everyone still stronger and stronger believe in owning the supply chain and also with the demand that is on the market right now, investing quite a lot. So semi is also quite strong, I would say. So no surprises maybe, about that.

So semi-mass rider demand, China is quite strong and non-China, how is that trending?

Similar, I would say.

Sounds good Okay. And if I may ask another question. Yes, on the Global Tech growing very strongly driven by PCB and die bonding. It seems like it's sort of silicon photonics die bonding, something like that. or maybe just optical in general. Yes. I was wondering if you could just talk a bit more about how you see the growth trending going forward? And how do you see kind of your EBIT margins for the group growing into the future?

Yes. So on the demand side, so very much is driven by Photonics and communication-related equipment, and it's really about optical very much on the the packaging of optical components into transceivers and stuff like that. So every typical customers are, of course, like Innolight Lumentum and those kind of people that were building transceivers for different manufacturers. And if you look on their numbers, they are very strong as well, I think. So that's really following on that side. I don't -- yes, so super strong demand. And this is impacting both -- it's the impact in Die Bonding directly with those customers, but also the whole AI infrastructure is impacting PCB test as well because then later, a lot of components are coming on very applicated boards that we test with our equipment or not we test, but our customers test that -- what was the second question now that was...

On the EBIT margin...

Yes, yes. Yes. Yes, exactly. So we had 36% in the quarter on Global Technologies. That's a little bit on the high side because we still need to build up capability and capacity in the division. So right now, the revenue and profit moving a little bit faster than the planned cost. So when the planned cost comes kind of a normal level, at the current demand and the current mix we will be around 30% in this division on a normalized level. So as everything looks right now. So that should be kind of the normal rate at the current momentum.

I was wondering, so you said 30% normalized EBIT margin. But presumably, let's say, the trends continue, revenues will continue to grow in terms of normalized, what kind of time frame do you expect or do you expect more like, let's say, if trends continue 30%, that will continue to increase going forward?

I think normalized, I mean, if you take that the current order intake translate into revenue, let's say, a year from now and then we are able to invest as we need to in that division. So I think that point in time is -- should be within a year. So that's the thinking.

The potential upside to that into the future?

Yes. If volume goes beyond that, then that should have leverage of course, the gross margin is quite strong in this division.

Thank you, Oliver. And now over to Nordea, Anders Akerblom.

I wanted to ask firstly on -- I mean, Anders, you said a bit about the display market being stable, expecting potentially some orders come through there as well, I guess, with the Precision 8000. But just kind of balancing that with what we're seeing in terms of component price inflation and that impacting some of the display manufacturers potentially investment willingness and such. How do you balance that against I guess, a good pipeline of eventual customers taking the Prexision 8000, I mean, timing-wise?

If anything, that would possibly delay a little bit, maybe decisions because, of course, the payback calculations will look differently with the higher component costs and so on. But at the same time, the development is -- has to happen in a way. So we haven't seen so much of that. If anything, it's difficult to say because you know that -- the pipeline is, I would say, quite normal. But as usual, the time between initial discussion and closing is extremely reliable in our case and we don't really know always if this is depending on what is the reason for that and so on. But I think I would say in my thinking is that it has a minor impact on decisions. in the bigger perspective. And we should really soon sell a P800. I think were logical, which should happen, but customers are not always as logical as we are, I think, so that's yes. Thanks. I appreciate that answer. And I mean, you elaborated a bit

That before in terms of Global Tech, and I know what you're trying to do in terms of sort of protecting, I guess, your demand and your existing customers with expanding capacity and working with sub-suppliers and whatnot. But how do you see the competitive landscape evolving here. As you say, lead times are quite long, 1.5 years in PCB test. I mean, is there something that keeps you up at night, so to speak.

Yes, I think it's something that we really want to improve. And of course, in 1 way, it could be very confident to have a backlog because then we know the future. But on the other hand, also quite a big risk on that one. And I think we definitely don't want to expand it more or to prolong the lead time more than what we have now. So -- but I think we can see that it kind of stabilizes and normalizes because we are we are getting better and better on deliveries as well. And so I think this is less and less an issue. But absolutely, this is super important. And I think right now, we don't have any -- because the customers also have quite some lead time at their end because it's not only our equipment that needs to go into the factories. And almost everyone has been challenge right now. You can see the lead times from -- even though it's not competitors, but complementary equipment is also extremely long and in many cases, longer. So we are not -- as long as we're not the worst, or the bottleneck, we don't get the heat really, but if it would be longer, then it might happen. So we should definitely keep it where it is. shorten it.

That makes a lot of sense. And I mean, I know it's still fairly early, but I would, as I always associate your speculation here. I mean, on the current just backlog in PG, all is equal, do you see revenues trending into 2027 in PG compared to 2026? Do you expect it to be at a materially lower level? Or do you see kind of some some orders coming through that would support that? Anything you could say there would be great.

Yes. I think we only know what we know right now in a way. So that is the current backlog and the delivery schedule. And as you say, there are quite some gaps in the quarters for we can still fill. So I think the next half year will really really tell on how well we are filling that. But it's it's a little bit on the fin side for sure. I agree to that. But we work very hard to fill it, but...

That I know you do.

Yes. But it's a product that is difficult to sell in a way that if the customer doesn't need it, it doesn't matter how good you are not selling it. So that's...

Thank you, Anders. And now we move over to Henric Hintze at ABG Sundal Collier. Please go ahead and ask your questions, Henric.

First of all, I'd like to just follow up on 1 of the Global Tech questions there. You said you don't want to let the PCB test lead times increase further and preferably shorten them. Could you give us any detail on how you intend to achieve that?

So the -- we are expanding the factory, and that effect will come towards the end of the year. But it's also the whole supply chain that is, in many cases, quite constrained, and we can see that from many different businesses right now that it's a little bit shocked. So I think the majority of improvement will come from there. Right now, I think we can also improve our you say, lead time in the factory even further a little bit. So we will be able to deliver more and more every day, you can say, it's small, small, small improvements. all the time. The big difference will come from early next year, I would say when we have more space or more capacity.

And could you remind us how much your capacity should increase from current levels when that comes online?

25%.

Okay. And on the margins in this segment, could you just give us some more detail on what has driven the sort of Q-on-Q change in the margin? Is it operating leverage? Is it price? Is it mix?

It's a mix of different things. Of course, the level of fixed cost in relation to the turnover is go down as we are increasing the volume and as we are getting the throughput up, that's 1 important lever. We have also quite a good level of software content with the bacterial functionality that we have spoken about a few times in these products and where we have launched a second version, which is also supporting the total price paid, even if it's not a price increase on the product as such. So -- and then, of course, given the situation, there is not so much of a price pressure. It's more a delivery pressure that we feel from the customers. So this in combination supports the improved gross margin in the PCB test specifically. On the die bonding side, we have since already some years, worked hard on improving the cost base and focusing on highly profitable products. supporting the improvement of gross margin in that business line.

Okay. And I mean orders in the first half year have obviously been very strong is 20% extra capacity really enough with the demand situation as you see it now? It doesn't sound like that much given the growth numbers we're seeing.

We believe that on top of what we have, that will at least for what we can see support the deliveries that we need to do.

And are you getting any indications from the customers here on sort of the longer-term demand picture?

We are already taking orders with a pretty long lead time and with down payments. So we know that if the world continue to exist, and then '27 will for sure be good and beginning of '28 as well. So -- but beyond that, it's -- I think we can speculate, of course.

Okay. I would love to hear you speculate more, but for I'll get back line for now.

Thank you, Henric. And now we will move over to Mikael Laseen at DNB Carnegie.