MELE.BR FY2026 Q3 Earnings Call Transcript
Date: 2026-10-28
Source: Financial Modeling Prep

Philip Ludwig: Good morning. Welcome, everyone, joining us today for the Melexis Third Quarter 2026 Earnings Call. I'm Philip Ludwig, Investor Relations. And with us today are 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 with some brief remarks on the business and the financials before taking questions, starting with Marc Biron. Marc, the floor is yours.
Marc Biron: Thank you, Philip. Hello, everyone, and welcome to this earnings call. I will start with an overview of the strategic developments and the operational highlights of the third quarter, and then Karen will walk you through the financial results and outlook. We made further significant progress in executing our strategy to win in high-growth market. In China, we signed a master purchase agreement with BYD. It means that we become a direct supplier in BYD's procurement ecosystem. We are excited to work even more closely with BYD's team and align our technology road map to drive generation of electric vehicles. We have also introduced our first chip fully localized manufacturing in China, demonstrating our commitment to match our local customer operational requirements. Order momentum from China remains very strong. Our sales reached a record level in Q3, and the order book points to further sales growth in Q4. We have opened a new office in Pune in India to expand our local engineering and sales team with the ambition to accelerate growth in this emerging market. In particular, we see significant growth opportunities in 2-wheelers, vehicle electrification, solar market and smart energy metering. Now turning to some operational highlights. Steering and braking and thermal management applications continue to drive our core automotive demand, which has represented 8% of total sales in Q3. Outside of automotive, sales for energy applications such as solar panel and heat pump were positive trend. The third quarter also marked a major milestone for robotics as our design wins are translating into active customer production volume. These ramps with solid order already placed for 2027 establish a clear growth trajectory for Melexis. Our commitment to accelerate growth in the product launches of the third quarter with an even split between automotive and nonautomotive applications. In addition to the product I just referred to, a current sensor with a full local Chinese supply chain, we introduced a cooling fan driver optimized for demanding applications such as the supply system of data centers. We have also introduced a low-cost magnetometer that provide robust tempering protection for smart utility meters, especially well suited for the Indian market. We have also extended our Triphibian technology, which measures gas and liquid pressure in the liquid cooling system used in the EV and in the AI data center. Looking ahead, we will continue to invest in areas that grow faster such as thermal management, steering and braking and the battery management system. At the same time, we are also winning new business as we have sharpened our competitive offering, which will translate into increased sales over the next quarters. I will now hand it over to our CFO, Karen Van Griensven, to provide more details on our financial results and outlook.
Karen Van Griensven: Thank you, Marc. So sales for the third quarter of 2026 were EUR 223.7 million, an increase of 4% compared to the same quarter of the previous year and an increase of 3% compared to the previous quarter. And the euro-U.S. dollar exchange rate evolution had a positive effect of around 1%. The gross result was EUR 91.1 million or 40.7% of sales, an increase of 9% compared to the same quarter of last year and an increase of 4% compared to the previous quarter. R&D expenses were 13.6% of sales, G&A was 6.5% of sales and selling was 2.2% of sales. The operating result was EUR 41.3 million or 18.5% of sales, an increase of 9% compared to the same quarter of last year and an increase of 7% compared to the previous quarter. The net result was EUR 31.3 million or EUR 0.78 per share, an increase of 14% compared to EUR 27.5 million or EUR 0.68 per share in the quarter of 2025 and an increase of 2% compared to the previous quarter. Now looking ahead. So Melexis confirms its second half 2026 outlook, which is for sales to be between EUR 445 and EUR 455 million with a gross profit margin around 41% and an operating margin around 18%, all taking into account a euro-U.S. dollar exchange rate of $1.12 for the remainder of the year. For the full year 2026, Melexis expects CapEx to be around EUR 40 million. This concludes our remarks. We can now take your questions.
Philip Ludwig: Thank you, Marc and Karen. [Operator Instructions]
Operator: [Operator Instructions] The first question is coming from Aleksander Peterc from Bernstein.
Aleksander Peterc: My first question would be actually on your gross margin development. Although you reiterate your guidance in full for the second half, I do notice that gross margins were slightly below consensus for the third quarter and the implied guide for the quarter is also something like 20 to 30 bps below the Street. So I'd just like to understand if you see any input cost pressure on gross margins at all? Or is everything exactly as you planned? And maybe you can then also provide a comment on how we should think about pricing into next year as you're one of the rare suppliers in automotive that hasn't raised prices so far in this cycle. So is this going to change next year?
Karen Van Griensven: So yes, gross margin overall, we -- our main target was to increase the gross margin working on cost of field. And there, we have been successful as expected. Of course, there are small fluctuations from quarter-to-quarter. There are many parameters that impact our gross margin. But in general, structurally, moving forward, we expect a gradual further improvement in gross margin. So I wouldn't focus too much on temporary changes from quarter-to-quarter. Structurally, we expect further improvement going into '27 on our gross margin.
Aleksander Peterc: And on pricing?
Marc Biron: On the pricing, I think it's too early to say. We are in the middle of the price negotiation and the forecast with the customer. And I think it's too early to make a strong statement.
Operator: The next question is coming from Janardan Menon from Jefferies.
Janardan Menon: I was going to your comments on the China market where you said sales are strong and Q3 was a record and things are strengthening into Q4 as well. Just wondering what exactly are the drivers of this strength in China? Is it because the car sales numbers seem to be quite weak. So is it that the content growth story in China is stronger than other parts because Chinese OEMs are moving faster on technology transitions, et cetera? Or is it design win and share gains like you are talking about at BYD? And in that context, following the launch of the domestic localized produced current sensor that you announced, does that kind of trigger additional demand because of either pricing or localization? And I have a brief follow-up after that.
Marc Biron: There are multiple reasons. I think the first one, as you mentioned in your question, I think the electronic content of the Chinese car is by default higher than on the European one. We have win some business in China. I mentioned in the past that the design win in China were very strong. I would say, 4 years ago, we had more design win in Europe than in China. But since 2 years, we have more design win in China than in Europe, and this is the result of this design win. We have also defined some action 2 years ago, the China strategy. I do believe this China strategy is now paying off. One of the actions you mentioned in your question was the local supply. Now we have the first product which is fully localized in China. But since 1 year, we have already the assembly and the test which is localized in China. I think this is something which is organized by our customers. And part of the China strategy was also to create an autonomous commercial team in China that can take the decision themselves independent of the let's say of the headquarter. And the last aspect, I would say, is our innovation. We see -- there is a lot of electrification in China. There is a lot of thermal management as an example. There is also a lot of braking and steering application in China coming back to the high electronic content of the Chinese car. And I think this is all those reasons that explain why indeed we have a good success in China.
Janardan Menon: Understood. And then my follow-up is on the robotics side. You've said that you are seeing volume now. You talked about orders in your Q2 results, and now you're talking about converting into volume ramps. Is this broad-based? Is it mainly coming from one customer in the U.S.? Or is it a number of customers across both China and the U.S., which is driving this conversion into volume?
Marc Biron: Yes. The big part of the ramp is indeed linked to a customer in the U.S. But we see also many smaller customers in China, which is growing. And yes, the large effect is due to this customer, but there is a lot of smaller customers that are also ramping mainly in China. And in terms of product, for the time being, those are the product in the joint and the deposition sensor in the joint and also the driver in the joint that are ramping up. But the tactile sensor will ramp in a second step. But for the time being, the tactile sensor is still in the opportunity pipe increase, maturing, let's say. And the production is really via the joint product.
Operator: The next question is coming from Amelia Banks from Bank of America.
Amelia Banks: Just the first question is on the second half guidance. it's based on USD 1.120. I was just wondering if you could remind me of what it was that you were using before for the second half. And I'm just trying to figure out based on a constant currency basis, has there been any changes in the underlying revenue outlook versus last quarter?
Karen Van Griensven: Yes. So we had $1.15 previously in the guidance. Now it's $1.12. Yes, the overall impact is limited. It is like in the range of 1% for Q4.
Amelia Banks: Okay. And then just secondly, just how are we thinking about OpEx growth now going forward, particularly R&D? Just should we expect sort of continued investment in these new growth areas going forward?
Marc Biron: Yes, there is no -- we plan to keep the R&D as it is today, and we will keep it on control without change. There is no change plan on this aspect. We have to -- because the, let's say, the product portfolio is shifting, and we need to add specific skills, for example, in mechatronic for mechanical engineer because we were developing some module, which is a new, let's say, discipline for Melexis, then we will shift some skills. to the future product, but we will keep the R&D cost stable.
Operator: The next question is coming from Guy Sips from KBC Securities.
Guy Sips: Yes. Two questions from my side. First is your feeling how much of growth reflects market recovery versus content share gains because of your strategy? And is it fair to say that going into 2027 that Western OEM weaknesses could offset the stronger momentum you see in China? And the second question is on NXP's news this morning, NXP remains cautious on automotive. What are you seeing differently at Melexis? And does NXP outlook makes you more cautious on the pace of the 2027 recovery?
Marc Biron: Yes, coming -- starting from your last question, let's say, on NXP. Yes, I would say the product portfolio is rather different versus NXP. We are really on the sensor and the drivers where we see still plenty of growth opportunities. The thermal management is more and more complex, more and more important for the car. The steering and the braking are really part of the novel car and part of the novel platform. Same for the battery. Then this is, let's say, our portfolio. And we do believe that this type of application will go also in 2027. I mean the positive momentum that we see in '26 quarter after quarter, we believe that it will continue in 2029. And to answer your first question about what is the mix in the growth. But first, I would say, we don't see at Melexis any effect of inventory. When we analyze the inventory of our distributor or the inventory of our main customer, it is stable. There is -- since 6 months, there is no increase, there is no decrease, and we don't see inventory effect. And for the future, I personally do believe that we are winning some new business and the growth is mainly fueled, let's say, by the new business that we are winning, mainly with our position sensor, with our drivers and also with the lighting product. Those are the 3 main growth area. And if link those products...
Guy Sips: [indiscernible] interior lighting?
Marc Biron: Yes, interior lighting. And if I link those products with the application, it's what I mentioned before, the thermal management, it's plenty of drivers, plenty of position sensors. And we have launched end of last year, a very good driver product with the SOI technology from X-FAB. This product has a lot of traction in braking and steering, it's mainly our position sensor or magnetic with a high level of safety level, what we call ASIL D a lot of traction for the braking system. And then we have our lighting product, which I have for the time being. Did I answer the questions?
Operator: Yes, I guess, yes. The next question is coming from Francois Bouvignies from UBS.
Francois-Xavier Bouvignies: I just wanted to come back on your comments on the inventories because I think it's a bit difficult to understand the dynamic in the market right now. You mentioned that you have normalized inventories at your customers, so I mean, if I quote, customers have normalized their inventories. That's what you said in the release. Now I thought the inventories were quite low. And if it's normalized now, it would have suggested that they refilled inventories in the last few quarters, which doesn't seem to be the case when we look at your automotive revenues, you didn't really outperform your seasonality significantly. And all the comments from your peers suggest that either inventories are very low or some are already increasing inventories as we speak. So I'm just trying to understand this. So do you mean that they increase in inventories in the last few quarters and now the refill is done? Or you just believe it's slow and your normalized comment means that it's flat. Just wanted to understand this dynamic here, if that's okay.
Marc Biron: Yes. I did not say -- I did not want to say that the inventory were normalized. What I wanted to say is that there is no change. And since 6 months, we don't see any change in the inventory of our distributor or of our customer. And it's really flat. No increase, no decrease since 6 months.
Francois-Xavier Bouvignies: So when you say in the release that customers have normalized their inventories, you mean flat normalized, i.e., it increased?
Marc Biron: Flat, yes.
Francois-Xavier Bouvignies: Okay. Okay. Just wanted to understand that. So there is a possibility of increase of inventories going forward?
Marc Biron: I would say it's the decision of our customer, let's say. It has been -- inventory has been higher in the past indeed.
Francois-Xavier Bouvignies: Okay. Okay. The second question is on China. Just wanted to understand how your business -- I mean you have local sales, right, and you have export sales. Do you have different between the 2? I mean, do you sell mostly on the exported cars? Or are you agnostic, i.e., you sell to a car and you don't know if it's going to be sold locally or externally. So how do you sell your business in China?
Marc Biron: Yes, we don't know. We don't know exactly in which car -- or in which car the products are landing. But what I know by experience, let's say, is the Chinese OEM give preference to the, let's say, non-Chinese IC supplier for their export car. This is quite clear in our discussion. But practically and in detail, we don't know exactly where our products are going to.
Operator: The next question is now coming from Ruben Devos from Kepler Cheuvreux.
Ruben Devos: I just have one on the BYD agreement. Just curious if you could tell us a bit more about that agreement. Does it like come with volume or pricing commitments? What type of product families does it cover? And when should we see it in revenue? I'm also interested whether there has any type of changes for your pricing exposure to BYD now that you have a direct agreement like this?
Marc Biron: There is no LTA and there is no volume or price commitment. It's a pure purchasing agreement. It means that, let's say, we are part of the preferred supplier, if I can say it like that. And then all the purchasing discussion are facilitated because they have been already cleared out in this agreement. And thanks to this, yes, we have, let's say, an easier access to the engineer, easier access to the innovation team in order to launch or to design in new products in the car.
Ruben Devos: Okay. And are you seeing other Chinese OEMs also willing to move to these direct agreements with the chip suppliers?
Marc Biron: No, we have -- this agreement is indeed valid for BYD. There is no other agreement with other Chinese suppliers -- OEM, sorry. And you asked also what kind of family of products that cover the full Melexis product. And indeed, we see since we have made this agreement that we have, let's say, more access with the engineer. We have more discussion with the engineer in order to build more business at the end.
Ruben Devos: Okay. Okay. And then maybe just on your own inventory, I think that one came down to EUR 260 million roughly. Earlier in the year, I think you talked about holding it stable or even higher. Is that lower level deliberate? Or is demand pulling it down faster than planned? And maybe what do you see by year-end in terms of your own inventory management?
Karen Van Griensven: Yes. structurally, we want to rather further increase our inventory to support growth. Over the last quarters, yes, the volume didn't come down so much, but it's more the value that has come down. But this effect is now fading out. So volume increases will become more visible moving forward. If we -- I mean, it's still the intention to rather increase the inventory than deplete to be ready for further growth moving on.
Operator: The next question is coming from Marc Hesselink from ING.
Marc Hesselink: First question is actually on the sequential improvement for the fourth quarter. I think throughout the rest of the year, you've talked quite positively on the sequential improvements, also talking about a little bit of order pull-ins during the quarters. I now take the midpoint of the guidance that actually it is a very small sequential improvement going into the fourth quarter. Just wanted to know if that's just seasonality or that you indeed see maybe a little bit less of this pull-in effect or anything linked to that?
Marc Biron: No real change in our view that there are still indeed a bit of pull-in within the quarter as it was in the past. And we have confirmed our guidance because we do believe that this is the right guidance, let's say. What is perhaps important to mention that we don't see push out towards the end of the year.
Marc Hesselink: Okay. That's clear. And second question is actually a follow-up on that inventory question just before. You mentioned that the value came down. Can you explain why it is? Is that the mix of the product? Or is that yes, given what's happening yet to lower the value of that inventory a bit?
Karen Van Griensven: It's in the first place, price decreases at suppliers, but also, there can also be some mix effect, but mainly price decreases.
Marc Hesselink: And should then have a positive effect on the gross margin going forward? Or is that not the way to look at it?
Karen Van Griensven: This is one of the reasons to be confident in further improvement moving on. We need to add for some suppliers and particularly assembly, we also inflation. So we have mixed impact today. But overall, it is positive.
Operator: The next question is coming from Michael Roeg from Degroof Petercam.
Michael Roeg: I have a question about pricing and I also have a question about trade. First, pricing. You mentioned you're still in negotiations for the prices for 2027. If I'm not mistaken, you typically negotiate prices which are then set for the entire year without in between. Is that also the case in your negotiations with your wafer suppliers on price for the entire year irrespective of changes in materials? That's my first question.
Marc Biron: Yes. The goal or the principle is to define indeed the price for the year depending on the volume. Usually, we have a matrix price versus volume. This is the way it is done.
Michael Roeg: Okay. And then about your price negotiations with your customers, one price for the entire year. Some of your competitors have raised prices several times in 2026. You haven't done that. So I was wondering, is that something that drives some customers more towards you because suddenly you become more affordable versus the competition? Or have your competitors only raised prices for other types of sensors?
Marc Biron: Yes. From my experience, our competitor has increased their price indeed for different kind of products for sure, the AI type of product or the memories. This is not part of our product portfolio. And I don't see that our competitor has increased their price in our type of portfolio and for sure, not on the big customer. It's -- I would not -- it's not impossible that for their small customer, they have increased the price. But for the big customer that we have in common with our competitor, I don't have the information that the price has been increased for our type of product.
Michael Roeg: Okay. And generally, if you and your competitors would like to raise prices, then there would have to be very high utilization and shortages. Is there any kind of indication on what the utilization rates are for sensors at the foundries?
Marc Biron: I can speak for Melexis. We have, for the time being on the wafer, there is no capacity. I mean we have enough capacity of what we need at our foundries. First of all, we have diversified our foundry offer, and we have also refinanced the capacity increase of fixed part. And for those reasons, we don't see capacity bottleneck in the foundry. On the assembly house, it's clear that it's a bit more tense, but together with our inventory, together with the relationship we have with the assembly, there is no drama.
Michael Roeg: Okay. Good. That's clear. And then the final question is about tax rate, just a small question. I noticed in the 5 quarters, the tax rate has been higher than the usual 17%. So I was wondering if the tax rate is going up because of the change in the sales mix more towards China or whether perhaps there have been changes in tax incentives. Has something changed? Or is it just coincidence?
Karen Van Griensven: No, there can be quarterly deviations. But overall, we expect our tax rate also in '26 to be in the 17%, 18% range. No major deviations to be expected from other years. But quarter-on-quarter, indeed, there can be deviations.
Michael Roeg: Yes. But that's also why it took the past 5 quarters to look at over a slightly longer period. And then I know this is a slightly upward trend of about 150 bps, but that's nothing that will continue or worsen.
Karen Van Griensven: No, there is no reason why structurally we would see much -- or to see it really higher than in the past.
Operator: The next question is coming from Robert Sanders from Deutsche Bank.
Robert Sanders: Maybe a question for Karen, just firstly, on the gross margin. In the past, you had a few headwinds from the FA LTA, partly yield, partly because you maybe didn't buy enough wafers, you had the inventory revaluation, you had gold price. You had tester utilization challenges. So as we look into next year, like how many of those headwinds sort of go away? And how many things do you think will maintain into '27?
Karen Van Griensven: Some headwinds like cost of yield is indeed has improved a lot. There is still further improvement possible, but the -- I mean, a big part of the improvement is behind us. You mentioned the supplier cost road map will help also -- will for sure help with the gross margin next year. We also have been working on the footprint. The effect of that will also be felt next year. But there are other headwinds like the gold tether dumping, that's very unpredictable. If gold goes up further, yes, then it will have a negative effect on our gross margin. This is something that we have to -- we are taking some actions where we can to reduce copper to go from gold to copper to eliminate, but for sure, not across the board that we can do that. So that is an effect that is still a headwind today. That also had a negative effect in Q3.
Robert Sanders: Got it. And maybe just a question on the growth into next year. I know you're not going to give a guidance, but at your CMT, you talked about high single-digit growth as being your goal. Given that you appear to be ordering quite aggressively from X-FAB and you're not raising prices, should you at least look to outgrow the market next year after you had lost some share in the past? Can you at least say whether you think you'll outgrow your addressable market?
Marc Biron: Yes. As I mentioned, it's too early to say to give some accurate figures. Yes, for sure, our long-term target is to -- I confirm what we said in the CMD, the long-term target is to grow high single digit, but we will not give any accurate answer for sure.
Operator: We have a follow-up question coming from Aleksander Peterc from Bernstein.
Aleksander Peterc: It was just regarding BYD. Do you have any design wins already there that will generate traction quite soon as from the fourth quarter on? Or is it a bit more longer term? When should we start to see a difference here?
Marc Biron: No, we have even -- first we had a historical business with B, which is more current sensor. But we have new business that will start in 2027 linked to magnetic position sensor, in position sensor and latch and switch for a specific application. So yes, we are -- in some case, we are after the design, we are in ramping the production.
Aleksander Peterc: Excellent. And can I just ask a very small follow-up on the snubber product? Do you have any traction there? I think there was a new product for you?
Marc Biron: We have good -- again, it's -- if we consider, let's say, the maturity of the funnel of the snubber, we have still very good traction with customers in China, very good traction with customer in Europe. we have traction in automotive for the battery. We have also a good discussion on the server, on the AI server. We plan to launch the product soon. And I think the first production will start, I would say, in summer '27. We are now -- and Melexis and our customers are in the qualification phase of the product, and we continue to increase the maturity of the opportunity.
Operator: There are no further questions at this time. So I hand the conference back to Marc Biron for any closing remarks.
Marc Biron: Thank you, operator. To summarize, Q3 demonstrates that our strategic choices are delivering tangible results. We achieved in line financial performance with sales and margin growth. We have reached a record sales in China. We experimented strong growth in India, and we enjoyed the start of active customer volume ramps in robotics. By combining a high rate of production with continued cost discipline, we are taking the right step to execute against our long-term target. We look forward to updating you on our full year results on February 3 in 2027. Thank you all for joining us today, and goodbye.
Operator: Thank you for joining today's call. You may now disconnect.