INFICON Holding AG (IFCN) Earnings Call Transcript

By my watch, it's 9:30 on this beautiful sunny autumn day. So good morning, and welcome, everyone. My name is Bernhard Schweizer, Investor Relations contact at INFICON. I have the pleasure of hosting this online Microsoft Teams webcast. Thank you for attending INFICON's conference on its third quarter 2026 results. With us today are Oliver Wyrsch, CEO of INFICON; and Dimitrij Lisak, CFO of INFICON. The management team will first present the results and then take your questions. During management's prepared remarks, you are kindly asked to turn your microphones and cameras off. You should have received by now the press release on the Q3 2026 results, together with the link to the accompanying presentation for this conference. All documents are available for download in the Investors section of the INFICON website at www.inficon.com. During the Q&A session, you can ask questions either in writing using the chat function in MS Teams or you can add yourself to the queue of people wanting to ask questions orally by clicking on the raise my hand icon. I would also like to inform you that we are recording this web conference to archive the audio file later on the INFICON website. The oral statements made by INFICON during this MS Teams session may contain forward-looking statements that do not relate solely to historical or current facts. These forward-looking statements are based on the current plans and expectations of our management and are subject to several uncertainties and risks that could significantly affect our current plans and expectations as well as future results of operations and financial condition. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Having said all that, I would now like to hand over to Oliver Wyrsch. Oliver, please.

Thank you very much. Good morning, everyone, and welcome to our Q3 2026 earnings release conference. We have the usual agenda. First, I will tell you a couple of key messages, figures of the quarter, the target markets and then the full year expectation. And after me, our CFO, Dimitrij Lisak, will tell you more details on the financials. Let's jump right in. Bernhard is right. It is a wonderful morning, but it is also really an honor to show you our outstanding report -- our outstanding reported results for Q3 2026. We have delivered a record third quarter regarding sales and orders with book-to-bill ratio far above 1, strong profitability increase, reflecting the completed efficiency measures and the positive volume impact. If you look at the Q3 numbers, specifically, the sales reached USD 233 million, which is up an outstanding 42% year-on-year and 18%...

Please everyone turn your microphones off. Thank you. Oliver, you are on mute.

Okay. Hopefully, it works again. Can you hear me, Bernhard?

Yes, we do. Go ahead.

Very good. All right. I repeat. Sales record Q3 sales of USD 233 million, up 42% year-on-year and 18% versus Q2 with strong growth across all regions and all target markets. What it also shows is that we are successfully ramping our capacity across our operations, moving every quarter up in our capacity to deliver products. If you look at the order intake, they remained strong, further exceeding the record level of Q2 by a significant step-up with a book-to-bill ratio far above 1. Semiconductor surged by 75% year-on-year and grew 26% compared with Q2 2026 with a market demand at very high levels and the ramp in full swing and ongoing for this year and the years to come. Advanced industrial markets, General Vacuum continued the momentum, growing 13% year-on-year, 9% quarter-on-quarter. RAC Auto sales grew 11% year-on-year, 2% quarter-on-quarter. Security and Energy increased 29% year-on-year, improving 50% versus Q2. If you look at the operating results, gross margin is at 50%. That's 3.5 percentage points up versus previous quarter and 7.1 percentage points versus Q3 2025. That is more than offsetting the increasing cost and inflation impact. If you look at operating income, up significantly to nearly USD 60 million, plus 160% year-on-year, a margin of 25.5%. In comparison to Q3 last year of 14%. Remember, that was in the middle of our reconfiguration, the trade war impact that affected us for a couple of quarters. Q2 comparison, we were at 21.3%. The step-up is -- for Q3 is partially affected by favorable one-off effects of around 2 percentage points. We report also a robust operating cash flow of USD 78 million. INFICON continues to expand its global operations rapidly. The global supply chain remains under pressure. There is in some areas, even increasing pressure, but the implemented measures have proven resilient through recent disruptions. We continue to invest in leading-edge R&D. In many ways, innovation is further speeding up together with the semiconductor ramp and also the other advanced industrial markets that see a speed up. And at the other side, as mentioned before, we're expanding our production capacity across our operations very successfully and we'll expect approximately USD 35 million and a bit above of CapEx for the full year. If you look at the worldwide markets and sales, we report a strong quarter and growth in all regions year-on-year. Particular noteworthy Asia Pacific, plus 50%, then exceptional, especially also China, plus 72% and Americas also up 34%, Europe 11%. We then look at the end markets, Semiconductors, we are in a leading position. We showed strong multiyear performance over the past years, as you can see, with nearly 12% CAGR, but also now accelerate fast in a broad-based ramp and with the increasing use of our sensors and software. The performance, record sales with a strong growth of plus 75% compared to Q3 2025 and a sequential growth of 26%. Again, you see here, we are able to ramp. We are prepared for that. We continue to ramp as orders even more increase, they have increased significantly and shown the steepest year-on-year increase of all times. #1 position across our product lines. Then for market expectation this year is clear, strong growth, and that will go into next year as well with this industry ramp in full swing. It's driven by leading-edge logic, by high bandwidth memory and much more technologies, also down to IoT and power chips around the data center build-out. The investments in leading edge nodes and advanced chip design continues though with intensity and that's also why the increased use of sensor and software is shown in these numbers and also is a continuing dynamic from the past going into the future. We have a strong R&D pipeline at INFICON, working very closely with our top leading-edge customers on the next generation, the one after the next generation with a number of product lines that continuously are upgraded, APX, CDG, UL product lines, many more. With that, I jump over to Advanced Industrial End Markets. It's a number of attractive tech markets with strong momentum and synergies with semiconductors. Many are positively affected also by the data center build-out, energy, big science, space, HVAC. So if we jump into these 3 target markets here, RAC Auto grew CAGR the last years over 11%. Q3 year-on-year, again, 11%, remains very strong also in a market with some headwinds. Some growth is driven by batteries for storage and for EVs. Definitely, the new refrigerants is an ongoing driver. Service handheld expansion is a good driver. And then the new HVAC, that's a coming segment that obviously has a lot of momentum for HVAC for data centers. Also interesting new product development in all these end markets as well. An example here is the new leak detection system, Arnova that works with Air and Argon, something that hasn't existed before. If you look at General Vacuum, strong growth also over the past years of over 10%. Quarter 3 year-on-year, plus 13% growth. We see growth also for the rest of the year as well here. Sales, plus 13% year-on-year, plus 9% quarter-on-quarter and a strong order intake across all regions. Also here as well as with RAC Auto and semiconductor, we are #1 player in the market regarding technology and market share. If you then jump into Security and Energy, smallest end market. This is a bit more slower, but very positive dynamics as well, specifically if you look midterm, sales grew 29% year-on-year, plus 50% quarter-on-quarter. It shows its chunkiness of this business, which relies on a lot of larger government programs. Also here, we remain a #1 position in the market regarding market share and technology. With that, I jump to the expectations 2026. INFICON raises full year 2026 guidance. Sales and orders are at a very high level across key markets, most notably, semiconductor ramp is in full swing. And ongoing, we are confident, therefore, and move the guidance up. We see some risks. We see also some potential for disruptions increasing in the supply chain. I think we were able to ramp up our capacity, also manage the supply chain very well, while it is under pressure. We see, at the same time, a higher risk for disruptions and we see also a higher risk for cost, in particular, for logistics and certain materials. With that, we taken into account, we raise our guidance to sales of USD 820 million to USD 850 million from previously USD 750 million to USD 780 million and operating income margin from 19% to 20% to 21% to 22%. To conclude, if you want to stay current on everything that happens at INFICON, check out the various channels where we share news, be it new products, be it our science collaboration for space or volcano science or also on data centers. And with that, I would like to hand over to Dimitrij Lisak, our CFO, who can give you a bit more details on the financials.

Thank you, Oliver. Good morning, everyone, online. So I will give you more color on the quarterly financials, the guidance and the outlook on the corporate. Q3 was another record quarter on sales, orders and strong profitability, while we continue to invest into expanding our production capacities and our innovation capabilities. Order intake remained strong and further exceeded the record level of Q2 with a book-to-bill well above 1. Sales ended at USD 233.3 million, up 17.7% versus previous quarter and 42.4% versus Q3 prior year. Gross margin ended at 50.1%, which is sequentially an improvement of 3.5 percentage points and an increase of 7.1% versus prior year. We generated an operating income of USD 59.5 million, corresponding to margin of 25.5% compared with 21.3% in Q2 and 14% in Q3 2025. As mentioned before, this quarter last year was heavily affected by the trade war with the 14%. This result reflects the strong efficiency gains we could generate in the last quarters as well as the positive volume impact, more than offsetting the increasing impact from cost inflation reeling. This result also includes some favorable one-off effects in the range of 2 percentage points of operating income versus net sales. The equity ratio remains strong at 64.6%, underlining the resilience of our business and both operating cash flow improving to USD 77.6 million and net cash increasing to USD 138.9 million remains strong. CapEx ended at USD 12.8 million, which is an increase of USD 6.7 million versus prior year. This reflects the ongoing ramp-up in capacity across our operations and we expect the full year CapEx to exceed USD 35 million. On the sales side, we actually see broad-based growth across all regions and all markets, specifically to highlight is the growth in China with 71.7% and Asia Pacific with 49.8% but also America showing a strong increase with 34.3%, followed by Europe with 10.8%. Semiconductors delivered the strongest growth with 74.7% year-over-year, while all our 3 Advanced Industrial Markets grew double digit year-over-year, specifically General Vacuum increasing by 13.3% RAC Auto growing by 11% and Security and Energy growing again with 29.4% year-over-year. As a side note related to streamlining our reporting following the continuous improvement of the way we report, we -- as you recall, and earlier this year, we provide more transparency on Asia by separating China and Asia Pacific into 2 regions. We will further simplify our end market reporting from 2027 onwards to 2 end markets, step to further and better reflect the dynamics of our business. More details to follow in the upcoming [ earnings results ]. The gross profit showed a strong improvement by 66% and gross margin of 50.1%, up by 7.1% and 3.5% sequentially. This is primarily driven by efficiency gains, higher volumes and certain one-offs of roughly 2%, as mentioned before, which is a combination of multiple factors. At the same time, the effects of cost inflation are rising, especially among freight charges, freight charges specifically have become more pronounced. R&D costs increased by 13.1%, reflecting continuous investment in innovation capabilities and future technologies and now representing 7.2% net sales year-to-date. SG&A costs rose 23.5% year-over-year, mainly reflecting further investments into our organization as we ramp, including the buildup of application engineering and our service organization, also personnel-related costs and upgrades to our systems. With this, the operating income increased significantly by 160.3% with the margin up by 11.6%, including the mentioned positive one-off effects. The income tax increased to USD 13.7 million with a slightly lower tax rate of 22.5% compared with 24.6% in Q3 last year. And the net income increased by 173.5% year-over-year with margin improving to 20.3%, mainly driven by the higher operating income. The balance sheet and the financial position further strengthened. Working capital ended at USD 251.6 million, which represents 27% of net sales compared with 34.2% in Q3 last year. The key driver behind this are improved inventory turns, 2.7 this year versus 2.4 last year as well as disciplined accounts receivables management with a DSO of around 50 days. Operating cash flow rose to USD 77.6 million, mainly driven by the higher net income. We are raising the full year 2026 guidance for both sales and operating income. This is based on strong order intake and a pronounced Semiconductor ramp, but also strong growth in our 3 Advanced Industrial Markets. At the same time, the risk of global supply chain disruption and cost inflation remains elevated, which we continue to manage closely and proactively. The new guidance is therefore USD 820 million to USD 850 million and an operating income margin of 21% to 22%. So these were the details on the numbers. Briefly on the next events on the corporate calendar. Today is the Q3 analyst media conference. We will have an analyst visit on November 19, 2026, and we will present the Q4 and full year '26 results. With this, I would like to invite you for the Q&A session and ask questions.

Laura Bucher has the first question for you.

Good results. Congratulations. A couple of questions from my side. So first, as always, on your guidance. I mean, looking at Q4, I mean, my issue is really more on the bottom range of the guidance. I mean that would imply Q4 top line USD 208 million and also on the EBIT, 19.7% on the EBIT margin. So I mean, unless you're -- on the top line fine, you mentioned the supply chain risk so maybe you can't deliver on time and we also have the holiday season. But on the margin, I mean, unless you're budgeting for really an outsized increase in raw material and/or freight rates, can you comment what kind of scenario for you to land on a 19% margin in Q3 versus your adjusted 23% in Q3 and already Q2 above 21%. So what are you seeing there? And then I'll take the second one after the answer.

All right. Sure. I will start and maybe, Dimitrij, you want to chime in with some specifics after. I mean, just the big picture, obviously, the sales cannot be totally disconnected from the operating income. So we -- maybe a few notes on that. I might be anyway a question after. So Q3 is very strong. It is a little bit higher than maybe we have expected. That is, of course, timing of when capacity comes online, when supply chain ramps up. And we have to say also that a little bit of revenue came from Q2 into Q3 and maybe a little bit revenue that belongs into Q4 was also delivered in Q3 because of the Golden Week in China. And that's why we have a little bit larger range of USD 30 million, which, of course, then affects the point that you were asking about regarding the operating income. On that end, next to the sales variance, which this is not part of the ramp. The ramp is working, but this is about timing of certain pieces of it, projects and capacity coming online. But we have also seen a number of disruptions and the number of disruptions have increased in the supply chain. That is outside of our control and parts, right? That is where we have built up second suppliers, where we have strengthened our supply chain. But nonetheless, through geopolitical factors, there is disruptions that really need quite some intensive countermeasures. So far, as you can see, we have -- our system has proved to be resilient. But we also have seen cost inflation there in freight, in particular logistics, but also in some materials. So this uncertainty just influences a bit of what we see can happen in Q4. I don't think this is necessarily too relevant if you look longer term. I think we've proven our ability to really go beyond the 20% EBIT. If you remember, we had this couple of quarters because of the trade war that affected us. And we have through [ Veeco ] integration, through efficiency measures really shown that we navigated through that successfully. And now as we go into the next growth phase can also scale up operations and with that lift EBIT. One more thing is important, a special effect is in Q3. I mentioned it before, but just to be clear that everybody hears it, we have favorable one-off effects in Q3 on the bottom line of 2 percentage points. That's the various different effects that we will not expect to see again. So that all put together is what led us to this guidance. Maybe you want to add some.

And maybe to complement on the last point you mentioned, basically, if you take the Q3 operating income number and discount is roughly 2% that you mentioned, and then you work through the midpoint, that's roughly the level we would also expect to continue. So there's no reason for us to significantly decrease, but you need to consider if you extrapolate to the first part of your question is, a, that the sales were particularly strong in Q3; and b, we have this onetime effect that you need to discount if you extrapolate.

And of course, you know that probably but just to make sure for everybody, we had a weak Q1, so that was affected by the trade war effects, right? So that drags the whole year down and you look at the full year guidance. I don't think this is relevant for the future anymore. But of course, it's stays with 2026. I hope that helps, Laura.

That does help. And then just one more on the capacity utilization. And you also mentioned in the previous calls that you had some plans where you could increase your nameplate capacity. So we heard from some competitors and also some of your clients that they will accelerate capacity increase. So just wondering where you see INFICON and what could that mean for your CapEx in '27, '28?

Yes. I think CapEx, Dimitrij can comment a little bit on our general CapEx strategy. I think it's in the usual range when we ramp 5%, 6% of sales. But -- and it will be the same as probably next year. Obviously, we spend it before and then deliver the sales. So there's a time lag in it. I mean if you look at the numbers, we are 40% up year-on-year and that is a sustainable level, right? So that already entails a lot of capacity expansion. So what I can tell you is we're basically all the time working on capacity expansion projects all around the globe wherever it's needed. Specifically in some of the semiconductor end market heavy product lines up 70%, that needs a bit more work. And I think also when we look how the order entry exploded and is further increasing extremely fast for next year, visibility there for next year. We're thinking it's going beyond that, but you need to look at next year also for expansion projects. So we will just have to go and continue do expansion projects at the pace we're already doing for 12 to 18 months. Obviously, we couldn't deliver some of it last year, right, because the whole ramp was delayed into this year, but we have been actually in this mode for a while, meaning continuous expansion.

Right. But with the -- let's put it this way, with the existing space that you have, right, you cannot indefinitely keep increasing 40% capacity, right, before you need to do an outsized. When I say capacity expansion, I mean, real capacity expansion, additional plants and additional buildings in space. So this is really what I mean.

Yes. Okay. Maybe for clarity, like most of you that visited us just know the Balzers location, but I want to stress that we are not a centralized organization like that. We have 11 centers of competence. Centers of competence is R&D and manufacturing. So there is Finland, there is Syracuse, there is Colorado, Syracuse, New York. There's Malaysia, there's Shanghai, there's Guangzhou. We ramp in all places. And it's a cascade, some is just filling up the space, some is adding space. So we actually have in numerous locations more space. We still have space next year to ramp even in Balzers. We do again the same thing as we did in the last ramp. We remove the office people, rent some more space for that and then have more production space. But at the same time, as you know, also here and in other places, we acquired extra land or extra space. And we have also in Malaysia just recently added a significant chunk of building, and we do this continuously. The same happens in China just now. That's what I mean with the constant project. Again, some are just tools, some are just starting tools and some is really additional space. So I don't see there is a kind of a ceiling. That's not how we look at things. We are in a continuous ramp discussion for all these locations, wherever it's relevant, obviously, right? Not all product lines are at the same pace or need to ramp the same speed depending also on the geography.

You had some numbers in the end. Now by end September, we actually crossed the full year CapEx level of USD 25 million. So we're actually above that already and we gave the outlook that we probably crossed USD 35 million. So it's also materializing in the numbers what Oliver just mentioned across both clean room expansion, tooling and other CapEx investments.

So it's actually a significant step-up, year-on-year comparison.

The next question comes from Martin Comtesse.

Congrats on the numbers, and very encouraging here. Just 3 questions, if I may, take them one by one. The first one, I'm still a bit in the dark here when it comes to 2 percentage point one-offs. You did mention the various elements in it. Has it anything to do with tariff reimbursements at this point? And whilst we're at this, could you maybe elaborate a little bit because I think at the last chat we had, you did mention tariff reimbursements are being negotiated or applied for. How we should think about additional one-offs coming from tariffs in the coming quarters?

So maybe first on the composition of this 2%. Basically, as I mentioned, this is a combination of multiple factors. One of them are actually tariff reimbursements. We mentioned it in the last earnings release call that as most companies we filed for reimbursements for certain periods and a certain part of it was credited. Now this is one part of the 2 percentage points. The other part is actually an effect from streamlining our leak detection portfolio in the food packaging area. So -- and there are certain other minor effects. So that's a combination of factors. And going forward, on the tariffs, we probably there will be something here and there, but we don't expect anything major to come in the next quarters from this. So we filed our claims and there are certain claims that have been approved and that's now included in one-off effect.

Yes, we shouldn't forget that there is other customer claims, right? So this is kind of this -- it's a bit non-value-add transactions back and forth. I would just -- the point important from Dimitrij here is that it's really a Q3 effect that you can really see. I wouldn't see that for future. I would red circle this part, this 2 percentage points.

Very clear. That's helpful. Is there -- can you quantify the tariff impact? Was it like 50 basis points, 100 basis points? Or do you not want to touch on that?

Yes. We would like to keep it with this level of detail with the 2 percentage points.

Okay. Understood. And maybe the second question is on Q4 sales. I think -- you already mentioned that there's been some pull forward, but also some delays from Q2. Do I understand that correctly that if -- let's just assume supply chains remain resilient and you keep getting your supply as you need, that sales could be sequentially lower in the fourth quarter versus Q3?

I think if everything works out fine, there is upside risk for sure, quite a bit. But we have to say that the disruptions have intensified. So there's more and more tiger teams running around chasing the oldest parts. It's not the simplest one or the most logic one that you maybe have managed the closest, right? So I think that is probably the main reason why we're a little bit cautious there on the risk. But I mean, sure, it's relevant for the full year and the Q4. But if you look a little bit longer term, this is really just maybe a bump or not a bump at all and a very positive thing. So I think the guidance entails both, right? The lower end, we really expect one of the disruptions become larger and then it delays into next year. No order will be lost. Nothing will be missed. This is about what falls into the bucket of the Q4 really.