Basler Aktiengesellschaft (BSL) Earnings Call Transcript

So, it looks like we are complete. Welcome again to our 9-month earnings report from Basler. Before we start, we need to make our legal advice here that all the statements we are doing today are based on views and assumptions made by the Management Board using information available at this time. So, we make forward-looking statements that are, by nature, subject to significant known and unknown risks and uncertainties. Having done this, we're going to start with our earnings presentation. Happy to have you here. We have good news to present, and we will start with an executive summary, then dig deeper into our financials, have a quick glance at the share performance, give an outlook, and then, we have obviously quite some time also for Q&A. And I'm handing over to Dietmar for the executive summary.

Yes. Thanks, Hardy. So, hello, everyone. So, let me get started with the presentation, and let me get started with some personnel and personal matter, which is regarding the future setup of our Management Board. Many of you know that the Basler Management Board has been a long-standing Board for really many years. I myself, when I joined the company in 1993, I would never have imagined to complete this year my 26th year as CEO in this company. Yes, you may have read it. I will leave that position by end of this year and will hand it over to Hardy, my long-time colleague, who I have, let's say, created much of the success together with that we have achieved over the last years. So, motives are personal. Decision already is, let's say, being discussed internally for quite some time. Ultimately, let's say, my goal with this measure is, after these 26 years to make sure that we have, let's say, a high energy, very capable Board together also for the future. I'm 62 years old now, turning 63 next year. So, I want to make sure that we have enough, let's say, engine in order to continue the growth that we have been showing most of the years in the future. So that will be possible due to 2 aspects. So, with Hardy, we are practicing continuity. Hardy is with us also for more than 20 years, know the markets very well, knows the organization very well; has been, let's say, crafting the culture together with me for many years. So, this is making sure that we can show continuity. And on the other hand, we have 2 relatively new or entirely new persons on the Board with Ines since beginning of this year. So, Ines is bringing significant financial competence to us, which is great to see. And our new CTO, Dr. Kai Stroder, so -- in his mid-40s, have been working with Zeiss for 18 years in various positions. So, he will bring in also recent knowledge about, let's say, optical technologies, but he is also, I feel, a strong entrepreneurial character and will be, let's say, be a great addition to the team in order to, yes, create and shape the future of our company in order to get us to the next level. So, my personal reasons are, I want to also do, how should I say, a readjustment of my personal dial, having more time also for my family, for myself. But as it looks, the major shareholder, the Basler founder family will suggest to the shareholder meeting next year to, let's say, vote me into the Supervisory Board, again, with the concept of continuity of keeping the network that I have in the market, keeping my technology know-how available for the market and also the customer contacts that I built up over the years. So, I will be very happy and proud to do this. And so, therefore, it's -- yes, it's a changeover in a way, but it's also a very continuous changeover. Overall, I think in the very best interest of all stakeholders of our company, and we are very convinced, so I can speak also on behalf of the Basler family that we have put together a good setup at the Management Board that will be leading us in the future. Yes. So, that being said as an introduction, let's come to the overview regarding the first 9 months. So we will start, as usual, with an overview regarding the market conditions. So we refer here to the market numbers that the VDMA, the Verband Deutscher Maschinen- und Anlagenbau is compiling on a regular basis. And what you can see here in the headline is that the bookings year-over-year in the European, we could say, computer vision market have been flat, minus 1%, whereas the billings have started to grow due to some large projects in the market. So, growing at 9% year-over-year. So, I would say these are still, let's say, mediocre numbers. So, the market demand is still characterized by rather low demand from all verticals, aside of the high-tech industries, especially the AI market and the industries that are delivering into the AI market like especially the semiconductor industry. So, we are talking here about new semiconductor manufacturing technologies that support, let's say, this GPU technology that we are hearing from NVIDIA and others. So, aside of the semicon market, we see also that the logistics warehouse market is improving, is already, again, in a rather good shape. And what we are also happy to see, because it's one of our important markets has been over the last many years, the consumer electronics market is, again, showing signals of life, of new investments. This is particularly true for the subsegment of the batteries for consumer electronic devices, but we are expecting also a healthy demand next year for the next-generation smartphones and general mobile handheld devices. So, what we also can see the Purchasing Managers' Index is around 50. So that means that we are still in stagnation territory from a general demand point of view. Yes, the EV battery production that we have hoped for here in Europe is possibly not happening, at least not nearly happening to that extent that was originally expected. Yes. So, general market environment, mediocre. I think that sums it up pretty precisely. So, regarding inventories, here we can say those have reached normal levels again. So, there are no, how should I say, effects that would delay new purchases anymore. So, we have had this effect for at least 18 to 24 months. So -- but that's gone now. So, we are back to short order to delivery periods, which is good. So, we have no artificial effects in the demand situation anymore from inventories. There are competition in the market, toughest competition is still coming from Asia, especially from China, no change here. But I think there's also no news. So, we have been living with this for many years. We see it also quite sporty in a way that we need to master that competition. If we master that Chinese competition, we will be mastering any competition. So, you always have a leading competition. And since 5 years or a little bit more, yes, China is the country where the toughest and most capable competitors come from. U.S. tariffs, yes, it's a -- how should I say, it's hardly predictable what's going to happen here. We have seen first news on the 10% tariffs, then there was the learning that metal, let's say, machinery is treated differently. That's to a limited extent, also true for us. But so far, we can say that we can handle it pretty nicely, so -- meaning we can explain this price effect to our customers. We are very transparent what is our cost, what is the additional cost coming from the tariffs. And we can say vast majority is accepting it so far. Yes, what else? Foreign exchange rates, so we have headwinds from the U.S. from the dollar to euro relationship, Chinese renminbi, Japanese yen, Korean won, all the same, weakening approximately 16% against the euro. So, significant headwind, also significantly diluting our bottom line margin. But as you will see from Hardy later on, still very positive change versus last year. But if we would not have had these currency effects, it would have looked quite a bit better, though. But yes, it is what it is, and we also have to live with this and manage it properly. So, this is the market situation. Let's then look at the Basler numbers. So year-over-year, like Hardy said, pretty positive picture. So, we are proud to show here a bookings growth of 29%, which is really remarkable and a billings growth of 23%. So, this performance is clearly better than what the market has shown, and we are part of that market data that we've shown to you. So maybe the market is overall, if anything, then a little bit weaker than that. So, very good performance. So, we are really proud about what we have achieved here bookings and billings wise. So, you remember last year was a very problematic Q3 that has been different this year. So, we have been able to show good numbers also in Q3, led by demand from the U.S., from China, but also Europe is showing a good upward trend. So -- and as the margins in Europe are good, this is helping us, especially on the gross margin side and then also on the bottom-line profitability side. Gross margins improved to 47.8%. So, previous year, 46.4%, diluted by the FX. So, it would have been even better than that if the FX would have been more favorable, leading then to a pretax result of EUR 13.4 million for the year, which is then equal to an EBT margin of 8% and after all, strong free cash flow. So, the real asset test, strong positive cash flow of EUR 12.4 million versus EUR 1.5 million [indiscernible] in the previous year. So quite good numbers. And happy to tell you about this so that you also can see in the numbers that the things that we have done over the last 2 years are leading to results. Yes, what you can see here on Page #7, how we have developed from a personnel size. You see here on the left-hand side that the staff size was 896 versus in 2025, end of Q3 2025 was down to 814 FTEs. So major effect coming from the second cost cutting in the last year. Since then, our headcount is more or less -- so apart from the normal fluctuation, is more or less stable. So, we will keep it here and grow our revenues with that existing staff. So, no hirings expected in the near future. So, we are still working on productivity gains. And yes, I think that will remain for some time if the markets don't overly positively -- are not developing overly positively. So, R&D quota has also come down. Last year, let's say, higher numbers of FTE, lower revenues, so R&D quota of 15.5%. This year with higher revenues, lower FTE -- headcount, down to 12.4%. So, this is, let's say, an improvement already. But also here, we have to say we want to further trim this slightly. So, not going to grow in the future according to our current plans. Yes, which leads me then to the strategy page that you may already know from previous calls. So, you have here that, let's say, chart that shows you the strategic path of the company. So, on the Y-axis, you see the portfolio expansion. So having started with cameras, adding all of the other hard and software components that are necessary to build a vision system. On the X-axis then the verticals, let's say, the customer groups we are talking to. Most importantly, the factory automation, the medical, ITS, intelligent traffic systems. So, we've talked numerous times about logistics. And on the very right-hand side, you see potential future markets mentioning here explicitly retail and agriculture. So, if we are able to grow our share of wallet with the existing and new customers, then this will be one dimension of our growth. And if we are successful of growing our market share in vertical within certain verticals or to expand into new verticals in parallel, this would then be the second dimension of our growth. In both of those dimensions, we are determined to leverage. Taking us then to the intended target position, upper right-hand corner, which is the full range computer vision technology provider. All right. So, then Page #9. one of the, let's say, very important elements of our growth strategy has been the direct go-to-market that really differentiates us from most of our competition. So, you can see here most of the M&A transactions that we have been doing over the past years. And again, majority of those acquisitions has been go-to-market oriented. So, very left-hand side, in '19, the acquisition of our Chinese distribution partner; in 2022, Korean distribution partners; then again in 2022 in the second portion then last year, French distribution partner, Italian distribution partner and now on the very right-hand side, the latest chapter to that book, which is the acquisition of the majority of Alpha TechSys, which has been or who has been our sales arm in India. So, India seems to become a more and more important market for Basler following the decoupling trends. So, don't get -- do not get all of your eggs into the China basket. So many producers are moving also into India. And we want to leverage that growth opportunity by that acquisition. So, we obviously want to grow it in the future, but this gives us a good foothold to get started from. So, we are very excited about that and are very happy that we were able to close this transaction. Yes. So that's it from the executive summary point of view, and I'll turn it over to Hardy, who is going to walk you now through the financials -- through the details of the financials.

Yes. Thank you, Dietmar. And I'm doing this also on behalf of Ines. She can't be here today because she's on her deserved vacation, [ presentation, hasn't ] joined us. Yes, let's dive into the financials and start with the overall top line and the regional distribution. Dietmar has given already some glimpse on it. In total, we achieved EUR 168 million. The growth driving regions, actually, if we look at the first 9 months, were clearly Americas. You see this also in terms of the distribution from 16% sales share last year to 22% this year. And then, within Asia, we have kind of a shift. China was a growth driver. The rest of Asian region were more flattish. And we said already in Europe, the situation is that until mid of the year, the region was relatively quiet. This is also why the sales share went down in the first 9 months, but we see definitely since mid of this year, picking up situation. So, most likely, the distribution will shift a bit also in the direction of EMEA until the year-end. Yes, let's have a deeper look into our bookings and billings. Start from the top line here on a quarterly basis. And yes, let's have a look at the third quarter actually, which is normally or is a seasonal weak quarter for us typically, and it was very weak actually in Q3 last year due to this basis effect, but also due to the good performance this year, we talk about even bookings up 43% quarter-on-quarter or quarter-over-quarter compared to last year and billings 29%. What you can clearly see is, since Q3 last year, we are step-by-step on an upward trend. I mean, the order entry situation and also billing situation sometimes is a bit stronger. But in general, we are on an upward trend here coming from last year's around mid-40s quarterly bookings and billings, and we are now in the mid-50s up to 60 range, which is definitely bringing a lot of stability to the company. I mean it's not the level where we want to be with the current organization. This is also clear. We want to increase even further, but we are really proud of what has been achieved already and that the measures we have taken are clearly paying off and that we are outperforming the market. What you can also realize is that even in Q2 and in Q3, the bookings were higher than the billings. This means for us, we have a little tailwind entering the fourth quarter. So, the fourth quarter itself, we will talk about later in the outlook. With regard to our gross margins, if we look at that also in Q3, even though we have currency headwinds, we were able to further improve to 49% in Q3. This also brings us to a sound gross profit in absolute terms of 27.6%. So almost the level of Q1 where we had pretty high revenue at around EUR 60 million revenue. And we are definitely step-by-step working further on our gross margin. We believe we can get back to the 50%. I mean it's definitely depending a bit on how strong the headwind of the currencies are. And you know that we are also under competition. But also here, we see clearly an improvement happening even though we don't have a lucky situation on the FX. To give you a feeling, the FX this year in terms of margin cost us in between 2% to 3%. So it's substantial. Yes, this brings us then further down in the profit and loss statement to the earnings before tax. On the line, you see the gross profit and the earnings before tax margin, almost 10% again in Q3. We were at that level in Q1 already, Q2 was a bit weaker due to lower gross profit margin and also lower revenues. And typically, we have also in the third quarter, a little bit less in personnel costs due to overproportionately taken vacation in those quarters -- in this third quarter. So, this is definitely bringing us back in the black numbers and not just around the 0 line, we are really back into the black numbers. Yes, so summing this up in this grid here, order entry up 29%, sales up 23%. So, bit of a tailwind we are having, as mentioned. Gross profit improved significantly above also here sales because of a better gross profit margin. EBITDA tripled, also worth to mention, definitely. And earnings situation, I mean, the comparison is always difficult when we had a loss in the year before, but we are above our plans with the 8% earnings margin. I mean you know that we want to get back to double-digit numbers, but we are on a good way here. We are not there, but we are on a good way. So, cash flow is a bit smaller than I expected it here on the slide, but we're going to manage it. You're correct. The cash flow is good. So, let's have a look also here in the 3 different quarters of this year. We started the year with a high revenue uptick. This was -- and this created a low, let's say, operational cash flow because the accounts receivables were growing first. This is why we started the year with also negative free cash flow, even though it was a positive result and also a very good revenue level. But over Q2 and Q3 now where the revenue level more or less stabilized or went a little bit back even to the strong compared to Q1, you see that now the accounts receivables are cashed in, and this is creating significant cash flow, operational cash flow on top of our results that we have created and also on top comes step-by-step reduction of our inventories, which are still -- and has been also beginning of this year still be on a high levels because of the impact of the chip crisis first and then the demand slowed down, and we had overproportionately high inventories, but we are also step-by-step managing them down. This all boils together here in quite sound operational cash flows with a stable investing cash flow of, by and large, EUR 2.5 million every quarter. We are here getting to EUR 5.4 million and EUR 9.2 million free cash flow in the last 2 quarters. Also summing this picture up, cash flow and liquidity. We started the period or this year actually, with approximately EUR 21 million cash account, had a strong operational cash flow of EUR 20 million, investments on a run rate level, I would describe it like that. And then we are -- we ended up with EUR 12.4 million free cash flow, which is above our earnings after tax. So we are, at the moment, having really high free cash flow rates compared to the earnings after taxes. With regard to the cash flow from financing, still a higher EUR 9 million payout. This is mostly paying back loans, so not interest rates. This is mostly paying back loans and then some leasing and interest rates. So, we are constantly reducing our debts. The cash account ended the end of Q3 with almost EUR 25 million, even though we are paying back our loans. And you can also see the structural wise in the lower part of this table here. At the moment, our liabilities to banks are EUR 47.5 million or at end of this period. So you can see the reduction compared to last year. Cash account is growing and our net debts are down to EUR 23 million roughly. So, below our expected onetime EBITDA for this year. So also structurally, we are making a lot of progress in our balance sheet, in our financing situations. Yes, this, at the end of the day, also is, let's say, having an impact on the share price. But before we come to this, just structural-wise, no big change on our major shareholders. And from the share development, we -- also since beginning -- mid of the year, we made another big jump. So we already had quite some improvement from beginning of the year around EUR 6. I mean that was also pretty low value. We all know the reasons why. But step by step also until mid of the year with our progress in the first 2 quarters, we made already quite some step. And then recently in the third quarter also, the share price improved and ended up at EUR 17.8 per share by end of the period. Yes, this brings us already to the outlook. Let's have a look and just a quick reminder on the U.S. tariff situation. I mean the situation in Q3 was more or less stable. We mentioned already last time in the Q2 report that we also managed the increase from 10% to 15%. We are able to pass it through to our customers or most of our customers. We are also thankful of the -- that the customers are understanding the situation, and we are very transparent with this, and this is valuing -- our customers are valuing that we are very transparent with this situation. This made us also flexible. Whenever the tariffs change, we can change it again. We will have, over the course of the whole year, a negative impact of approximately EUR 0.5 million because it took us also some time to make the changes. And there are also, as Dietmar mentioned, some new stuff coming in, steel, copper, and it takes some time to adapt. And there, we have an impact, but it's a limited impact. The larger impact, and we mentioned this already, is definitely more on the macro economy that we are still seeing our customers holding back decision-making for investment decisions. So the market demand is muted by the situation. And we have clearly, since Q2 after the announcement, a weakening of the currencies we already mentioned, especially in the U.S. and in Asia. Yes, what are the market assumptions for the remainder of the year? I mean it's only 2 months left, but I mean, in line with the trade associations, we are foreseeing a sideway development of our markets, more or less. We also believe the PMIs will not pick up significantly and that it will change also the currency situation. In general, we see also that the verticals will stay relatively quiet besides, let's say, electronics batteries, so consumer electronics, battery production, logistics and semicon AI. So, in a way, no change to what we have seen from a pattern perspective in the markets in the first 9 months. Intensity of competition will stay high, maybe even increase, especially in the weak markets where everyone is fighting for projects. And we will also continue to have a low visibility because the inventories are down. Customers have also relatively low inventories, but they also just fly, let's say, in a foggy situation. So they decide very short notice to release orders because they also know that we can deliver very fast. So this means for us, delivery times are typically 2 weeks and our foresight is approximately 1 to 2 months, but not longer. So this is the situation we are in. But we are confident even though we see these market conditions, due to our performance in the first 9 months and also due to the project landscape we are seeing and the progress we are making, we have increased second time in this year our guidance last week. So the new guidance is EUR 220 million to EUR 225 million on the top line. Beforehand, the corridor was pretty wide, EUR 202 million to EUR 215 million. And on the earnings side, we will -- also we decided that we are able to have an uplift here, 5.5% to 7.5% is our new guidance. Beforehand, we were in the range of 2% to 6%. The reason because for those of you who are deeper into the numbers might think the earnings margin is a bit -- might be a bit conservative. But typically, what we know from the fourth quarter, I mean, we have also the situation that on the OpEx side, we get more invoices from our suppliers because everyone is cleaning desk at the year-end. This needs to be anticipated. It's also a low vacation season. And on top of this, there is also year-end auditing, and we have a new auditor since beginning of last -- or last year was the first time our auditor is Deloitte. We are still in the situation that Deloitte needs to get to know further the company, and we also need to consider in our year-end guidance that they find something that leads to depreciation of intangibles or depreciations also on the inventories, and we are taking a careful look at this. This is included in our guidance. Yes, the step forward. Actually this year makes us even more confident to reach our midterm plan to reach EUR 275 million in the year 2028, and also to be above 12% when we are there. Actually, we anticipate at the moment that getting to 12%, for that we need roughly EUR 250 million, EUR 260 million in sales. So we will be hopefully along the way already at the mark of 12% earnings margin or earnings before tax margin. And yes, we are keen on to, let's say, keep our talented team together and grow further the top line. I mean what is not in our hand, but where we cross fingers is that the access to the China market remains because it's becoming, again, a substantial portion of our business, and it's also a growth driver at the moment. So, this is something that needs to be mentioned here that this is a key assumption we base our midterm plan on. Yes, we are looking forward to get there. And this brings me to the end of the presentation, and we can open up our Q&A session. And for that, our colleague, [ Yan ] will give some instructions, and then we can directly enter into it. [ Yan ], it's your turn.

Yes. Thanks. Hi, everyone. [Operator Instructions] So, let's check maybe the chat first. Okay. No questions so far. But we have one question over here. So, second -- okay, so Malte Schaumann.

My question basically is around the environment. I think with the Q2 report, you indicated you have several larger projects in the pipeline, logistics and on the semicon side. So, first question is, have these materialized more or less as planned in the second half? Or are these currently materializing as planned in the second half? And then the environment, especially in AI-related semiconductor space has improved throughout the third quarter. And is that something a trend that you also see in your order pipeline, project pipeline?

Yes. What we can definitely say is that the projects we see in the area of AI chipset production and, let's say, hardware production for data center equipment that this has become true and that this is also accelerating at the moment as this fits together with the landscape of investment announcement that you also can read in the press. I mean, all these investments at the end, these are announcements at the moment, but they will lead -- they need to increase in production output. And what we are clearly seeing is that the investment -- the CapEx investment into that direction, into this market is accelerating at the moment, and will also have a positive impact on the fourth quarter of our results. What is -- I mean, we have also larger projects in the landscape of batteries for consumer electronics. This typically -- these are projects that come more in end of Q4, beginning of Q1. So, there is, at the moment, still a question mark whether they'd come, to what extent they come and also when they come exactly, whether it impacts this fiscal year or not. And in the logistics, typically, there is no big investments in the -- typically at the year-end season because that's Christmas season where the fulfillment centers are busy. So, it might lead to bookings, but we don't anticipate at the moment super strong billings coming from that segment. Hopefully, this is giving you more insights, Malte.

Yes, I think that fits to the picture. So, you also see near-term demand relating to the AI. So, I think that fits to some other comments for near-term CapEx.

Yes.

Yes, I think that's good. That's basically my question. And Dietmar, all the best for your future activities.

Yes. Thanks, Malte. Always a pleasure to meet you.

Okay. I'm currently checking other questions, but none so far, to be honest. No raised hand. Wait one second. So, [ Bruno ], you're still muted by yourself, but you wanted to ask a question, I think.

Are you hearing me?

Yes, we do.

Thank you very much for this very, very clear presentation first. And just want to ask a general question. I mean you have experienced since, let's say, 8 to 12 months or a little less, a strong rebound and, let's say, a new stability in your business. What I want to understand is what was the real reason of that? I think the first reason could be the fact that you decreased your cost. So, a rebound in activity overproportionally give you good results. Is there other reason because you seem to be so conservative on the market that naturally, I ask myself, why there is this miracle that the recovery came. Do you get my question or is it too complicated?

Yes, I think -- and we can shed some light on it. So, [ Bruno ], I think -- I mean, short term, definitely, we had to reduce personnel because we oversized the organization. We sized the organization for EUR 300 million revenue. This had to be done actually. And -- but that is not the root cause, I would say and also will not lead us from here into the future into better numbers. The reason is, first of all, we see a revenue impact because there is no longer a distortion and muted demand from higher inventories at our clients. So, this year is the first year for, I would say, 2 years now where we have the direct demand that we serve. And then we have been outperforming, let's say, our competitors in the trend markets and verticals we mentioned here, logistics, AI-related stuff, also consumer electronics battery. But what needs to be really underlined, I mean, as we are also long in the business, the broad base business has not picked up yet. This is to come, nobody knows when. And what we are doing at the moment is we simply, let's say, further improve the performance for top line results, efficiency gains and I mean, do our best in winning market share and further growing the company. And what's in front of us is really a broader market recovery, but we simply don't know whether it comes next year or the year after next. But that's definitely also something we have not seen yet. It's more here winning market share, having reduced our cost base. The inventories are out and outperforming our competitors, especially at larger clients in the, let's say, dynamic verticals.

I mean, [ Bruno ], also some words from my side. By the way, nice to meet you again. A couple of additional factors maybe. So, we managed to stabilize and grow China business again, so which was very weak last year. And so we have made progress in winning large-sized OEMs again, which is a very, how should I say, encouraging signal. So, we have also seen that our strategy starts to play out in a way that we sell to our existing customers simply more than the camera. And I mean, back to the strategy page with the full portfolio approach, that was always on our mind, let's say, to utilize the customer base that we have and simply sell them more from one source, from our source. And our sales force well understands it, step-by-step better to execute this strategy so that we can see it in our KPIs, let's say that this, call it, non-camera business, cross-selling quota, different terms that may be familiar to you, that this is growing. And so, this is also making us hopeful that we, let's say, further can build on this progress. I hope that helps.