Mycronic AB (publ) (MYCR) Earnings Call Transcript

Hello, and welcome to the presentation of Mycronic's Q3 report. My name is Sven Chetkovich. I'm the Director, Investor Relations, at Mycronic. And with me today, I have Mycronic's CEO, Anders Lindqvist; and CFO, Pierre Brorsson, who will be presenting today. With that, I hand over to Anders. Please go ahead and present Mycronic's Q3 report.

Thank you, Sven, and welcome, everyone, to this session. So today, we will, of course, talk about the quarter 3 in short and then go a little bit deeper within the different divisions that we have. Pierre will explain everything about financials, and we will talk shortly about sustainability. And as usual, we will end this session with a question-and-answer section. And in the material that is to be found on the website, there's also an appendix where we have collected all the market reports and update. So start to talk about the quarter in general. So we had a very solid quarter, and it's on all counts, which, meaning that all the divisions contributed very nicely to the result. So we saw an order intake that increased by 10%, and this is to be compared to a very strong quarter in 2025. So almost SEK 2.7 billion in order intake. The greatest contribution came from High Volume division and Global Technologies division. Sales also increased very nicely, 38%, almost up to SEK 2.4 billion, close to, and the primary reason for that is the growth that we have within Global Technologies. But we can also say that all divisions actually had double-digit growth in the quarter. So very nice. Also very solid gross margin, 52%. And with all that together, the EBIT increased to SEK 610 million, which equals to a margin of 26%. Backlog is a record high on a little bit more than SEK 5.5 billion, which is the highest ever. And also, we launched new financial targets during the Capital Markets Day that we had on August 31, which also the picture that is not anymore here, was strong. Pattern Generators, starting with that. And this was happening also during the Capital Markets Day that we launched 2 new products. One is called SLX Kite, which is a next-generation semiconductor mask writer with extended and enhanced capability; and also for the semiconductor segment, a photomask inspection machine, IQX. These are very important launches because both of them are actually expanding our available market. So it's not only an upgrade of already existing equipment. It's really offering new capabilities that will enable us to grow further in the semicon market. On the business side, we saw a decrease of order intake down to SEK 616 million. We had 3 tools on order during the quarter: one, Prexision 80 Evo, which is the display machine; and two, SLX mask writers for the semicon industry were received. Increase of sales up to SEK 580 million, 20%. And in that number, we have a small contribution from our recently acquired company, Cowin, that is equals to SEK 23 million. Gross margin stable at 59% and EBIT also quite stable on SEK 188 million. And in that one, we had also a negative effect from the acquisition of Cowin with SEK 13 million. So that corresponds to a margin of 32%. So in the backlog, we have 11 systems in the order backlog, which equals to SEK 1.741 billion. Another news in the Pattern Generators division, and this is just after the quarter, but we have appointed Mikael Wahlsten as the new Senior Vice President of Pattern Generators, and that is effective from November 1, so quite soon. And he is replacing Charlott Samuelsson, who has decided to retire. Charlott had 30 years with the company, so a very long time. And Mikael has a little bit less, but still 23 years with the company. So also a very senior leader that is taking over, and he's recently had the position as Head of Product Strategy and Development within the Pattern Generators division. So we look very much forward to welcome Mikael to the management team. Going further with the next division, so PCB Assembly Solutions, we still see that the demand is continued to be quite soft in our segment, which is the high mix and low volume segment. We also see some price pressure, especially from Japanese competitors. And it's quite visible in the order intake that ended on SEK 367 million, which is a decline of 9%. A little bit up on the sales compared to the same quarter last year, 14% up, to SEK 358 million and quite strong gross margin of 41%. So we were able to increase the EBIT to, I would say, a decent SEK 42 million and a margin of 12%, which is not that bad actually in this environment. Also, the backlog increased a little bit to SEK 266 million, which is quite a good backlog actually. So see a little bit improvement on the result, although the market is still quite soft in the PCB Assembly Solutions segment. High Volume, we see a continued momentum here, and we see a difference between the markets inside China and outside China. So outside China, we saw a very good demand, while the domestic market in China weakened a little bit. And this is a typical cycle in the China market where we see the majority of orders coming in the first half of the year that is supporting our customers to launch the product at this time of the year in the autumn, more or less. So altogether, we saw a very nice order intake increase with 42% to a little bit above SEK 600 million, also a very nice increase of sales to SEK 569 million and quite solid and normal gross margin of 41%, EBIT at SEK 74 million. And here for comparison, we have the cost of the ESOP program impacting SEK 25 million here. So adjusted for that, we have quite a good increase on EBIT as well. Margin, 13% and a very strong backlog of SEK 1.2 billion. So strong performance in the High Volume. And then on Global Technologies, here, we saw all the stars being aligned for the quarter. So we had an exceptionally strong quarter, both driven by volume, but also by product mix. We'll talk about product mix when we come to the profitability. But we see that the general market conditions are still very strong. We could see that it's driven by investments in AI infrastructure, but also investments in developing advanced packaging and also defense. Defense segment invest quite a lot of money. So very good for us. We increased our orders with 33% to a bit more than SEK 1 billion, very nice. We had doubling -- more than a doubling of the sales, 105% up to SEK 852 million, a super strong gross margin of 60%. And we had a very favorable product mix in the quarter and volume. EBIT also very much up to SEK 359 million. A little bit of that is a revaluation of the consideration in Surfx that impacts SEK 15 million or 2% on the EBIT margin, that was 42%. We also had quite low cost in the quarter because of partly the summer period is in this quarter. Backlog, very strong backlog, SEK 2.3 billion, more than double than the old one. So super strong performance here, although a little bit exceptional for the quarter. So all that has enabled us to, again, I would say, revise our outlook for the full year. There's only 1 quarter to go now, but we believe that we will end on a sales number of SEK 9.75 billion for the full year. So that is a new outlook from the Board of Directors. So with that, I will hand over to Pierre, to talk a little bit more in detail about the financials.

Thank you so much, Anders, and good morning from my side as well. If we look at the numbers quarter-by-quarter, you can see that we are just below the very strong Q1 and Q2 in terms of sales at SEK 2.4 billion, up versus a low quarter last year with 38%. The aftermarket revenue was a record SEK 606 million, and we saw a good improvement across all divisions in the aftermarket, which is one of the initiatives we are driving. And in particular, in Global Technologies, the increase was substantial. The EBIT margin ended at 26% in the quarter, which we consider good, given the mix between the various divisions we had in this quarter. If we look at it on a rolling 12-month basis, we are now up at SEK 9.3 billion with an EBIT margin of 28%. And with the aftermarket continuing to grow and has now passed the SEK 2 billion mark distinctly, constituting 24% of our net sales. If we look at the improvement that we had over last year, which was more than a doubling of the profitability, we had a good volume effect, but we also had a gross margin impact, and this was largely stemming from the Global Technologies division, where we had not only record volumes, but also record gross margin in the quarter, stemming from exceptionally good product mix, high aftermarket share, software updates, et cetera. So really, really good. We don't want to extrapolate this level going forward, but really, really good in the quarter. We are growing the organization in all areas and especially on the R&D side, where we are investing a lot in product development across the group, not least in the Pattern Generators division. And this took us in the end then to SEK 610 million EBIT or 26%. If we compare with the same quarter last year, this is, of course, not the only metric, but you can see that we are improving in all divisions. And if you would exclude the SEK 25 million ESOP cost in the High Volume division, you would see that this division would be on similar improvement as Pattern Generators and PCB Assembly Solutions. But the main difference to same quarter last year is obviously coming from the Global Technologies, where we had very low result last year and great results this year. If we look at the cash flow, we have strong cash flow from operations. I'm also happy to see that we are developing really good on our receivable collection. So although we are growing strongly, the change in working capital is mainly stemming from a higher inventory, which is logical in a period where we have this growth. If we look at the investing activities, we have acquired in the beginning of the year, ETZ and Cowin, which is then SEK 184 million. And apart from that, the majority of the investments are actually stemming from investments in facilities we are building in Taiwan and in China, et cetera. Financing activities is largely the dividends that was paid out in the second quarter. And we have now a very solid cash position above at SEK 2.9 billion and cash at the end of the period even above SEK 3 billion. So really solid financial position as well. With that quick walk-through, I hand the word back to Anders again.

Okay. Thank you, Pierre. So a short -- some few words on sustainability. We are improving our emission, carbon emission footprint quite nicely, and the majority of that improvement comes from that we're using much more renewable energy in all our facilities that we have. And we are today now or in the first half of 2026 at 96% of all the electricity that we use are coming from renewable sources. And that is a transition that we work quite hard with. Another part of sustainability is Code of Conduct, and one part of that is among our suppliers. Here, we see a decline that we have a fewer -- lower percentage of suppliers that have signed the Code of Conduct on 87% and high-risk suppliers down to 58% coming from 60% and also from 95%. And the reason for that is that we have acquired companies that has typically quite a low percentage of that. So that's dilution. So of course, the effort is here to bring the acquired entities also up to our normal standards and of course, even exceeding that over time. So that is an ongoing work. And yes, we will continue to share the progress on that side. So that was the end of the formal presentation. So now we are on the Q&A.

Yes. Thank you, Anders, and thank you, Pierre. And so now we are moving over to our Q&A session.

And we will be starting with Handelsbanken and Fredrik Lithell. Please go ahead and ask your questions, Fredrik.

I think I'll start with one and then jump back into the queue. So Anders, maybe you could elaborate and put some color on the impressions from your customer dialogues from the new machines you have just launched, the Kite and the IQX. How have the reception been? And what are the talks about during Q3? Could you address that a little bit? Would be interesting to hear.

Yes. So especially on the IQX, customer interest is really, really high. And we are developing that product in cooperation with some key customers really to make sure that we are ending up with the right specification and the right configuration, and we will quite soon ship the first tools to customers, if not yet already happened this week around this time. So yes, and we continue to see good demand. Actually, the most dialogue is to accelerate deliveries at this very moment. But of course, we are in parallel also developing the product.

And on that, I mean, you say good reception. That's nice to hear. But you have competition here. So there are already sort of equipment available in the market. So what is it that sort of makes you stand out to the tune that customers are very happy that you are coming with this machine?

Yes. So I think this is -- it's filling a hole or a gap in the kind of product portfolio from the competition. We are a little bit similar to SLX. We are more in the mature node segment with this inspection machine. And most of our competitors have focused all the development work on the small nodes actually. So there is a gap in the market. Also, our tool is much more efficient. So the cost of ownership, the productivity, everything is actually much better than competition. So we believe it's a better choice. And of course, as always, there is a switching cost. If a customer is used to one product, it's required a little bit of effort or change, of course, but it seems like it's worth to do that.

Okay. And the SLX Kite, any color on that, those dialogues?

Not yet, really. Do you...

We see a great interest for it. And obviously, here, it's a market with basically two large players, and we think that this will further enhance our edge in this competitive landscape. And this is also -- I mean, the productivity increase and in particular, is what the customers will go for, we believe. So positive reception, but the jury is still out there.

Thank you, Fredrik. Now we move over to DNB Carnegie and Mikael Laseen. Please go ahead and ask your questions.

Congratulations to a strong quarter, first of all. Yes, you mentioned that Global Technologies had an exceptional quarter, and it should not be extrapolated. Can you clarify this, what this refers to? Is it the gross margin primarily? Or is it also the sales momentum and order intake?

No, it's more on the result side. So exceptional gross margin that is record high, and it's a combination of very good utilization, low cost and high deliveries despite being in the holiday period. It's a product mix, what we have shipped to various customers. High portion of aftermarket, high portion of software, et cetera, et cetera. So it's really exceptionally high and at the same time, relatively moderate cost development, so.

Okay. So do you see this in the order backlog that this will normalize quickly now in Q4? Or is it gradual over time that this could come through that the mix is a bit different?

I think you will already see somewhat different numbers in the fourth quarter. This is a bit of an exceptional quarter.

Okay. And can you talk to us about the lead times in the Global Technologies segment for PCB Test and die bonding, and which of these 2 are -- have the strongest momentum right now going into 2027?

I think we have good momentum in both these. We have also a good backlog, obviously. And in particular, in the PCB Test side, we have a bit longer lead times than we would maybe wish for. So we have a very good position. If you compare quarter-on-quarter, where was the strongest order intake, I would say on the die bonding side rather than on the PCB Test compared to what we have seen earlier in the year where PCB Test has really been the strongest driver.

Okay. Is the capacity situation holding back orders in any way? Or is that not something that the customers are thinking about -- I mean, the lead times for you to deliver?

Our view is that we haven't made any substantial losses based on lead times.

Thank you, Mikael. And now we move to London, and Oliver Wong at Bank of America.

I want to focus on what you mentioned on ASML and TSMC, the new 12-inch photomask, very exciting. From my understanding, you guys focus more on the mature nodes and TSMC focuses more on the advanced nodes. So yes, just curious if you can share more color on how much of an impact do you think this initiative could potentially have on your business?

I think -- yes, so 12-inch is -- the normal photomask size is 6-inch for the semiconductor. So this is double the size, and that is, as you say, intended for the smaller nodes. But on the smaller nodes, 75% of the photomasks used are actually laser-based written or laser writers could be used on 75% on the photomask. It's only on the 25% of photomask on high -- on the small nodes that are another technology, electric beam -- electronic beam is actually needed. So for us, it's quite neutral in which kind of node size that the growth is happening. And it's correct that the 12-inch is intended for the super small nodes really. And it has been discussed during years actually now. But now finally, TSMC and ASML is coming together and also with some other players in the industry and settle that. And our position here is really, really good because we developed the SLX to be capable of managing 12-inch photomask already from the very beginning. So for us, it's quite a small adaptation to do that. So we believe that we have a very good position to capture at least the laser-based masks for the 12-inch sizes.

Got it. So this is smaller nodes anywhere up to even like 2 nanometers or...

Correct, yes.

Okay. I thought that you guys were capped at maybe like 60 nanometers.

Yes. And that is the resolution on the patterning there. So it's not linked to the node of the semicon.

Okay. Thank you, Oliver. And now we move over to Anders Akerblom at Nordea.

So I wanted to ask as well a bit on sort of this ASML and TSMC initiative. It was out in September, if I'm not mistaken. Obviously, quite long-run optionality. But what you said now about sort of the SLX being able to handle 12-inch was quite interesting, I thought. So in the future, firstly, do you expect some sort of pilot sort of orders to when they're testing this and seeing if it actually works to transition to 12-inch? And secondly, should we expect sort of a meaningful ASP uplift on future SLX orders if that's on the 12-inch format? Or will it be somewhat similar relative to 6-inch?

I think it's quite difficult to say when we will see orders on this...

Of course.

I mean, everything has to go in sync. And it's not only ASML and TSMC that need to be aligned around the 12-inch. But when that happens, we will be in a super good position to capture that market. And given that, I would be surprised -- the ASP should be higher, of course. I don't know really where it could be or should be, so. But it will be a unique product for that.

But the installed base will have -- thank you, Anders. The installed base, all else equal, will -- I mean, how should one think about replacement of that?

Yes. It depends on the -- how big brick...

If it's successful. If it's successful.

Yes, if it's successful. The whole installed base is based on 6-inch. 100% of that.

Sounds quite interesting long term, I must say. Even if it's difficult to say now, I get that. And on Global Tech, obviously, I mean, incredible growth. But when you talk about expanding capacity that that's the focus right now, you previously sort of alluded to meaningful 25% capacity growth in PCB Test towards year-end. Does that still hold? Should we expect that to be more meaningful? Or is that reasonable?

I would say this holds as planned. The entire plan holds -- and I think you can see in the sales result or the sales increase also that we are able to produce more now so that -- but the extension is not yet finished. It's -- and a little over.