Sensirion Holding AG (SENS) Earnings Call Transcript & Summary

Dear ladies and gentlemen, we would like to welcome you to Sensirion Holding AG conference call on the results of the half year 2026. From Sensirion, Marc von Waldkirch, our Chief Executive Officer; Martin Wirz, our Chief Financial Officer; and myself, Lars Dunnhaupt, Director Investor Relations, are present. In addition to the press release we issued earlier today, we will be referencing a presentation during today's call. The PDF of this presentation can be downloaded from the Sensirion Investor Relations page. As we begin, please note that the conference call is being recorded and that all participants are set to mute. During the conference call, we will be making forward-looking statements regarding future events or the financial performance of the company that can involve certain risks and uncertainties. The company's actual results may differ from the projections described in such statements. So please take a minute to read it. Let's take a look at the agenda. Marc will begin today by covering the highlights and business review of the half year results 2026. Next, Martin will comment on the financial performance. Martin will then turn the call back to Marc, who will address the outlook 2026. Afterwards, Marc and Martin will take your questions. I will read out the questions. And with that, I would like to turn the call over to Marc.

Yes. Thank you, Lars. So also a warm welcome from my side to this earnings conference. It's great to have you with us this morning. Let's start with a short executive summary. I think the headline today is simple. We continue to grow in a pretty volatile environment, broad-based and on the back or on the base of a pretty strong first half of 2025 as reference base. Revenue came in at CHF 179 million. This is an up of 7% in local currency, minus 3% in Swiss currency. The prior year period was highly influenced by the front-loading effects in the A2L ramp-up scenario, which normalized in the meantime. And this high reference base makes also the continued growth even more encouraging. The growth once again is based on a pretty broad base. On the one hand, that all the 4 end markets contributed to this growth with a particularly strong momentum in medical business, in distribution business, but also consumer markets. The softer development in the U.S. or in Americas in general, in this region reflects the strong prior year base from A2L sensors and could be offset by other regions. On profitability level, we held the profitability EBITDA level of healthy 19.5%, supported by an expansion in gross margin to 52.6%. A particular highlight this year is the improvement in net income, which has grown by roughly 80%, driven by a normalized financial result. Operating cash flow came in at CHF 34 million, an up of 20% compared to last year's result. And on the back of this strong first half year, but also backed on the strong momentum looking forward, we have raised our full year guidance for 2026. I will comment it in details at the end of the presentation today. I think all in all, we can summarize the ability to keep growing in a pretty volatile and demanding environment and off a high base is the fundamental message I'd like to share this year with you. And this also underscores the market position we have, the strong technology platforms we have, and the close engagement with customers, which was the base to record these figures. First, I'd like to go through all the 4 individual markets to comment them in details. Let's start with automotive. Automotive market delivered strong growth this year, up 11% in local currency despite the structural challenges in the Western automotive industry. The existing business or the existing applications proved resilient. But the more important message strategically is the fact that the growth came from the new growth fields, mainly or in particular, from the first launch of battery management systems for EV cars with a larger European OEM. Apart from this thermal runaway detection system, we're also working on a lot of other RFQs either for this application, but also in all the other applications we presented during the Capital Markets Day related to our growth fields in automotive on the one hand side, also refrigerant leakage or the new megatrend of autonomous or partially autonomous driving. In Medical, medical market performed as well, pretty strong with revenue of CHF 28.7 million, an up of around again, 10% in local currency, even up of roughly 39% compared to H2 of 2025. Growth was mainly driven by our established applications of CPAP and ventilation application. Part of this demand might also be reflecting precautionary inventory buildup from our larger customers seeking to strengthen their supply chain security in these volatile times. Strategically, we are progressing well in all our growth fields as presented in the Capital Markets Day, namely, in particular, about smart gas sensing and medical, about resuscitation applications, about capnography or also about advanced respiratory diagnosis. Coming to the industrial markets. Industrial market is a pretty broad, diversified market. This market held the prior year revenue in local currencies with a plus of 1%. This is against a first half year of 2025 that was heavily influenced and benefiting from these front-loading effects in A2L. A2L in the meantime is progressing as expected. So we have this kind of normalization, and it's moving forward as planned as also presented in the last earnings call in March. So in A2L, we could retain our market leadership worldwide, while we are progressing in the next gen of leakage sensing for HVAC systems, that's the A3 story, which is more hitting the markets in Europe and Asia in some years from now. The normalization of A2L could actually be offset completely by other growth fields, namely the gas, especially the gas chromatography with Qmicro on the one hand side, but also pretty strong growth contribution from smart gas metering in this industrial field. Next slide is more for your reference. This is the very same slide as we have presented in details last time in March. It's just to give you reference again about the upcoming dynamics and momentum in the A2L market after the front-loading back last year, the normalization phase now, this market is translating into a robust solid market with a moderate growth anticipated for the next couple of years. But there is no change in this slide. It's more for your reference. Coming to the last of our 4 end markets, that's about consumer. Consumer, a highly fragmented market, posted strong growth this year with 45% in local currency, up to CHF 12.3 million. This was driven primarily by a very strong demand from our distribution channels across all the 3 regions, Asia, Europe, but also Americas. There, we have a very broad customer base, which is also of strategic value in order to seek for new solutions for new lead customers, and this broad base of distribution market is a significant asset for the company looking forward. Portfolio-wise, we were also supported by the new miniaturized CO2 sensor, which has a good traction in the distribution and the consumer markets. Before going to some kind of a strategic recap, I'd like also to answer probably very likely questions about Lumiphase. So from Lumiphase side, there is no significant updates to be shared today. They are still fully focused on fixing the last open technical issues they have to do, especially about stability of their technology. And on the other hand, they are still continue to deepen their relationship and collaboration with leading customers in order to tackle this challenge of going up to the next bandwidth in data communications. But there is no strategic update, which is significantly different to what we have shared last time back in March. Then a short view going back to the strategy. We had our Capital Markets Day in April this year. I just like to some of the slides, they are the same as we have presented there in order to give you a short recap of the strategy. We have presented our ambitious growth strategy under the banner of we measure gases precisely, reliably and at scale. Sensirion today is, at my knowledge, at least, the company with the probably most comprehensive portfolio of technologies to measure small amounts of gases in any kind of application. And that's the unique edge our growth strategy looking forward is actually based on. On top of that, of the technology portfolio, we do have deep relationships, long-term relationships with important leading customers in all the fields we are in. And secondly, we have also a deep application expertise in-house to combine technology with the problems of our customers. That's the base of our growth strategy. The market we are in and we are looking for is smart gas sensing, a fast-growing multibillion market driven by secular megatrends such as the health issue, the demographic changes, aging society on the one hand side. We do have the climate and environmental protection. We have energy efficiency as a megatrend. And last but not least, also the regulations and norms in order to increase safety for people. All these megatrends translate into mission-critical applications. They are coming up in this field of smart gas sensing, from breath analysis about patient monitoring, about the emission of hazardous gases or the leakage of critical gases in any kind of application. And this is exactly the market we are fully targeting at the moment. And in this market, it's not just about components; it's also all the way up to full solutions to solve the full problem of our customers' sensor challenges. Our vision in this market is clear. Our ambition is to become market leader in this high-value smart gas sensing markets by 2030, solving and focusing fully on these mission-critical challenges as a trusted partner of our customers in regions. To do so, we have defined 4 strategic pillars. On the one hand, it's about dominating the core, the core of flow applications, but also environmental sensing applications and to even expand our dominant position in this field. Additionally, the second pillar is about building up leadership -- market leadership in the leakage market, a market which is growing fast, which is coming up at the moment. A2L is just a starting point to do so. It's about A3, but also battery management is at the end of the day, a leakage detection application. Third pillar is about expanding to medical and industrial solutions, always focused on mission-critical applications as we have presented in the Capital Markets Day. And last but not least, all these solution-oriented innovation-driven application is not a value if we cannot strengthen our resilience in this volatile environment. Therefore, also the strategic pillar #4 is about the increase of resilience in our supply chain in the way we operate our business model. This is the ambitious growth strategy we have. It's not just a dream. It's built on concrete growth fields we have presented you in detail during the Capital Markets Day. All of them have a significant growth potential for the next couple of years. And it's important, it's not just about the far out future. Some of the growth has already contributed to the first half of '26 financial results, in particular, about battery management, but also about gas chromatography with our company in the Netherlands, Qmicro. So it's not about future. It's also about reality today, the first contribution are already recorded from our growth strategy. Saying that, I'd like to hand over to Martin to dive into all the details of our financial results.

Thank you, Marc. And also from my side, a very warm welcome to the audience. Over the next few minutes, I will take you through our financial performance for the first half year of 2026, the top line and the development by market and region, our margins and profitability and how this translates into cash and future strengthening of our balance sheet. Marc will then come back to walk you through our raised outlook for the full year. Now let me start with the headline numbers. We delivered revenue of CHF 179 million, up 7% in local currencies. In Swiss francs, that's a reduction of 3% as the strong franc continued to weigh on reporting figures compared to half year 1 '25. A theme you will see running through the presentation today. But importantly, the underlying momentum of the business is clearly one of growth. Profitability remained healthy. Our gross margin improved to 52.6% from 51.5% a year ago. And the EBITDA margin held at 19.5%, essentially stable versus 19.8% in the prior year period. And cash generation was a real highlight. Operating cash flow rose 20% to CHF 34 million, leaving us with a cash position of CHF 83.8 million at the end of June. So growth in local currency, margins held and strong cash conversion. To briefly recap market development, growth was generally broad-based. All 4 end markets grew in local currencies. You heard it from Marc, Automotive was up almost 11% in local currency despite the well-known structural headwind in the Western auto industry, thanks to growth with new applications. Medical grew close to 10%, driven by strong CPAP and ventilation demand and consumer as a standout is up 45%, carried by the strong distribution demand across all 3 regions. Our largest market, industrial at 54% of revenue held its prior year level in local currency, up around 1%. That is a strong result. When you recall, first half year '25 was benefiting from a significant A2L front-loading effect as per before and driven by growth in other industrial applications, smart gas metering and gas chrom was mentioned and also the strong distribution business offset the expected normalization of A2L. By region, APAC and EMEA both grew double digit in local currency, while Americas declined, also reflecting the strong prior year A2L base. So the picture is one of underlying momentum with FX and A2L comparison masking the true strength of the first half year '26. Turning to the next slide. This slide shows the margin profile. Gross margin was up 110 basis points to 52.6% on the back of operating leverage, favorable product mix and our continued efficiency programs. That improvement absorbed both currency and elevated raw material costs. The margin strength is what allows us to keep investing. R&D intensity was 18.4% of the revenue, and this is fully in line with our midterm innovation strategy. SG&A was 20.9%, reflecting targeted investment in our customer-facing functions. In short, strong gross margin is comfortably funding the innovation that drives our future growth fields. On profitability, EBITDA came in at CHF 34.9 million, a margin of 19.5%. That resilience reflects gross margin expansion just before elaborated and OpEx discipline, while we continue to absorb FX and higher material costs and keep investing in growth. Below EBITDA, the net profit rose 81% year-on-year to CHF 18.9 million. The main driver there is a normalized financial result. The prior year period was heavily impacted by foreign exchange losses from the strengthened Swiss francs. The equity accounted contribution from Lumiphase came in, in line with our expected run rate at the comparable number than last year. Net working capital was stable at 33.5% of last 12 months revenue. Inventories came down as A2L stock level normalized and supported by active inventory management, while we preserve the flexibility to serve the demand of our customers. CapEx was elevated and in line with our communicated plan. It reflects the continued investment in manufacturing capacity here in Switzerland, including CHF 8.2 million of growth CapEx for our second cleanroom in Stäfa, which is progressing on schedule and within budget. Depreciation and amortization are rising in line with our investment cycle. Turning to the balance sheet. The highlights of the balance sheet. Our balance sheet remains a real source of strength. Net cash increased 14% to CHF 81.7 million compared to the end of 2025, funded entirely by operating cash generation. Our equity ratio stands at a very solid 80.8%. This gives us substantial financial flexibility. Our capital allocation priorities are clear: organic growth first, then capacity expansion and selective M&A while maintaining a conservative leverage profile over the cycle. In other words, we can fund our ambitious growth from a position of strength. Finally, the cash flow statement puts this all together. Operating cash flow was up 20% to CHF 34 million as a result of the improved profitability and disciplined capital management. The investment outflow of CHF 23.4 million reflects the capacity expansion on one side and capitalized development expenditure. That leaves free cash flow of CHF 10.6 million after the elevated cleanroom investment. And crucially, our growth investments remain fully funded from operating cash flow with the net cash position still increasing. Free cash flow conversion of around 30% will normalize once the cleanroom program completes. To summarize, with a broad-based growth of 7% in local currencies across markets, margin held at a high level, net profit up substantially and the further strengthening of the balance sheet with 20% higher operating cash flow concluded a strong half year 2026. And with that note, I would like to hand over to you, Marc, for the outlook for the remaining year and the increased guidance for 2026.

Thank you, Martin. And before giving you the chance to ask questions, a short comment on the raised revenue guidance for 2026. So based on the strong results of first half of the year, but also looking forward based on the continued momentum we see in the market for this year, we decided actually to increase our revenue and also profitability guidance for the full year 2026. We are fully aware that the environment is still and will remain volatile and challenging. On the other hand, our broad-based end market approach, but also the market diversification supports and continues to support the resilience we have in these volatile markets despite all these macroeconomic and FX headwinds. At the same time, we see that our growth initiatives broadly distributed across all the markets, across all regions will gain traction or are gaining a traction at the moment already and are more and more contributing to the results. And on the back of this analysis and assessments, we came to the conclusion to increase our revenue guidance from CHF 335 million to CHF 360 million, which was the range in March, to CHF 345 million to CHF 365 million. This reflects a growth of 8% to 14% in local currency compared to last year's full year results. And as a consequence of that, also to expect the EBITDA level to be at the upper half of our range of mid- to high teens. This underlines both the resilience of our business, but also our confidence in continued growth for this year, but also looking forward to the next years to come. With that, we'd like to close our presentation of today's results and give you the chance to ask questions. I'd like to hand over to Lars to moderate this Q&A session.

Yes. As I said before at the beginning of the call, please use the Q&A tool in GoToWebinar and submit your questions and give you a little moment to submit questions. Currently, I didn't receive any questions. I still see no questions. I'm looking here in the room. Okay. I think let's wait another minute. Maybe then some questions come in. I think, apparently, Marc and Martin have done a very good job and does it work? First question, could you please remind us of the total amount of CapEx for the new building and its spread over the years?

Yes, I can comment on that. Total CapEx is around CHF 40 million spread over this year and predominantly next year, about in the same amount for half.

Next question is on sales. What are the swing factors from the lower and upper end of the sales guidance?

Well, I think at the end of the day, we have to be realistic that we have now a range of, I think, CHF 20 million only. So this can be influenced by 1 or 2 bigger orders from some customers and also their inventory management. So at the end of the day, it's not modeled in a way that we say, okay, if this happens, then we are ending at the lower end. And if that happens, we end at the higher end. It's more about the pretty large amount of different customers coming in and the dynamics in the market at the end of the day. So there is not a strict scenario A and the scenario B. I think this range of CHF 20 million today, looking forward for the second half of the year is more reflecting the volatility of the market and the inventory management of customers, whether they will put the last orders in December again or whether they are going to push them out to next year's demand for January, and this is reflected by the CHF 20 million range.

Then there's a question on Lumiphase. Could you please explain the results of the equity accounted investees?

Yes, that's basically their run rate since they are now heavily in the R&D side, that's basically the cost base on our share of the company.

So we hold almost 50% of the shares. Therefore, it's almost 50% of the loss of the run rate loss of Lumiphase. We have to reflect in our financial results.

Then another question related to Lumiphase. Could you explain again the issues, the challenges around Lumiphase?

Well, there are -- I don't like to dive into a very technical discussion because it's pretty challenging to understand the technology behind. But at the end of the day, I think that's the normal way we have to go through with a new technology to pre-apply for one specific demanding application. That means the technology is so-called BTO layer, a barium titanate oxide layer, which can manipulate light that works. That can manipulate light, it can also manipulate the light fast enough in order to reach this level of bandwidth, that's a good message. On the other hand, going forward, you have also to fix a lot of different issues, process-oriented issues in order to scale it up to higher volumes, but also on the other hand, stability issues in order to keep the performance of the material even in very challenging environments, high temperature, long operational run times and all this stuff. This is exactly what happens now. We are pretty used to that. So each new sensor, you can take the CO2 sensor, but also flow sensor, humidity sensor, all of them underwent through the kind of process that, first of all, sensor works. It can measure humidity. In this case, with Lumiphase, it can manipulate light, but then you have to go through another phase. It means to fix all the issues that the performance can also be kept even over the whole time of operation and even in pretty challenging environments. And this is exactly what happens now to fix all the stability issues and there, not yet all issues are fixed. They have -- we have actually to go step by step to fix all these minor but also major parts. And this is actually the job they are doing today. In parallel, the engagement is continuing to talk about and to design the applications to check and to validate the performance of these chips in the very application of customers' product. This is in parallel progressing well with customers.