Sensirion Holding AG (SENS) Earnings Call Transcript

Dear ladies and gentlemen, we would like to welcome you to Sensirion Holding AG's Conference Call on the Results of the Half Year 2025. From Sensirion, Marc von Waldkirch, Chief Executive Officer; Martin Wirz, Chief Financial Officer; and myself, Lars Dunnhaupt, Director, Investor Relations, are present. In addition to the financial results, the press release we issued earlier today, we will be referencing a slide presentation during today's conference call. The PDF of this presentation can be downloaded from the Investor Relations website under the -- under Results and reports. As we begin today, please note that this conference call is being recorded. During this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that can involve certain risk and uncertainties. The company's actual results may differ materially from the projections described in such statements. So please take a moment to read it. Marc will begin today by covering the highlights and the business review of the half year 2025. Next, Martin will comment on the financial performance for the half year 2025. Then Martin will turn the call back to Marc, who will address our financial guidance for 2025. Afterwards, we will take your questions. Please use the Q&A tool of the GoTo Webinar app. I will read out the questions at the end of the call. And now I would like to turn the call over to Sensirion Chief Executive Officer, Marc von Waldkirch.

So a warm welcome to everybody. Thank you for your interest and also for your attendance this morning here at our earnings call. Well, so start first with a short executive summary. I think first half of 2025 brought us significant growth on the top line, but also a significant improvement in our profitability profile. The growth was mainly driven by 3 out of 4 markets. And probably the highlight of the first half of the year is definitely A2L, the ongoing ramp-up of A2L refrigerant leakage sensors for the U.S. HVAC markets. More will come in the details in the slides afterwards. We have also completed the acquisition of Kuva Systems, the U.S.-based startup company we could acquire in order to make a significant strategic step forward for our data-driven business of Sensirion Connected Solutions. Last but not least, we also continue our very focused and disciplined view on grabbing and catching new growth opportunities while keeping also the benefits we have acquired last year with the productivity and the efficiency program that means this balance of focusing on growth, but also keeping the productivity levels as we have acquired last year on the same level. And this brings me actually to the financials. We closed the first half of the year with CHF 184.5 million. This is a plus of 44% despite of a minor foreign exchange rate effect. Gross margin improved to 51.5% and the EBITDA margin to 19.8%. Both profitability levels reflects actually the fact that we are now on a higher level of utilization of our semicon component manufacturing lines in Stäfa. Business outlook, we confirm the guidance we have already given in March, while we are narrowing the top line guidance from CHF 310 million to CHF 350 million down to CHF 320 million up to CHF 340 million. That means the midpoint will stay the same. The guidance for the profitability will be confirmed without any further changes. I will come back to the guidance at the end of the call today. Well, I'd like now to walk you through -- shortly through all the 4 segments, the 4 market segments, starting first, as usual, with the automotive market. That's the only segment, by the way, which was not contributing to our growth in the first half of the year. So automotive was more or less stagnating. This is actually reflecting two facts. On the one hand side, there was just a lack of new projects kicking off and ramping up in the first half of this year. Secondly, it's also reflecting the headwinds in the automotive industry in the western part of the world. And our footprint in automotive is significantly stronger in the western automotive markets rather than the Chinese one, and this was also -- is also reflecting the stagnating situation in automotive this half year. Looking forward, we are very optimistic. So we are working hard on very exciting new applications, especially in the area of e-cars but also ADAS, that means automated -- autonomous driving assistance services where we can also grow -- drive our growth further in automotive in the next years to come. Medical. Medical showed a significant growth profile in the first half of the year. This is based on two effects. On the one hand side, kind of a recovery of the severe destocking effects which happened in 2023, but also in the first half of 2024. We have already seen in the second half of last year that destocking came to an end. Now we can actually benefit from this effect. So one part of the growth comes actually more from the base effects that we can recover to the levels before. The second element is actually the benefits of the fact that during the pandemic, but also after the pandemic, we could acquire additional customers in our very important core applications of CPAP but also ventilation, and we could even maintain these relationships after the pandemic. And this brings us now to a higher level of revenue in these two core applications compared to the situation before all the fluctuations of the pandemic and destocking. Industrial. Industrial is definitely the fast-growing market at the moment, not just for this half year, but also looking back in the last couple of half years, mainly driven by [ A2L refrigerant ] leakage. I think most of you as long-term investors are very well known about this opportunity, but to shortly brief it for probably some new investors, A2L is a kind of a refrigerant category, which is already introduced in the Asian market and also in the European market. What has happened now is actually that U.S. has also moved to this new kind of refrigerants in -- at the beginning of this year. This new refrigerant, A2L, comes with a significantly lower climate impact level. So the GWP is significantly lower, the Global Warming Potential. On the other hand, it comes with a higher risk of flammability. And in contrast to the European and Asian markets, the U.S. market decided to regulate the -- these risks by having an obligation to design in a leakage sensor for -- to detect any kinds of leakages in order to mitigate the risks of flammability. This was a great chance for us. We are 1 of the 3 sensor companies worldwide that could actually grab this opportunity at the beginning of the year. We can also say honestly that we are the market leader now. So we have definitely the highest market share in this respective application of A2L. This drove the growth in the second half of 2024 already, but also now in the 2025 first half year. We are now on run rate for this application. So we are not expecting to grow further, thanks to this ramp-up because ramp-up is actually over. On top of that, the industrial market has also benefited from additional growth opportunities beyond A2L, especially in the appliance sectors, in gas metering, but also in home appliances, driven by stimulus program in the domestic market of China. For the second half of the year, we expect to have slightly lower demand in A2L. The main reason is actually that typically in this kind of ramp-ups, they are so critical, all the customers, they decide to make kind of a front-loading. So they try to fill up the supply chain, not just the supply chain inventories of sensors, but also downwards, downstream to fill up the inventories of finished goods of air conditioners. And this comes now to an end. That means now the inventory levels will be balanced out in order to reach a normal level of run rate. Consumer market. At the end of the day, after several pretty difficult half years, we can now report a significant growth also in consumer markets. This is mainly driven by very strong distribution results. Consumer market is a highly fragmented market, which is mainly handled by distribution partners, and they delivered a pretty good result. On the one hand side, also driven by this Chinese stimulus program, but also on the other hand, we saw a lot of the dynamics in the markets due to the U.S. tariffs especially at the beginning of the year. That means a lot of Chinese manufacturers, they decided to place additional orders in order to be ready for any good moment to import these goods or not our sensor, but their final goods to the U.S. markets, reflecting these high fluctuations of U.S. tariffs on and off all the time. That brings me to a short update on the tariffs. I think probably this is the topic #1 today, by far more interesting probably for you than all the details of automotive or medical markets. That is our exposure with tariffs. I think we have to divide between direct exposure and indirect ones. In the direct way, our exposure is pretty limited. On the one hand side, this is due to the fact that most of our U.S. customers, they are not going to produce their devices in U.S. That means they ask us to ship our sensors, not to U.S., but to any other countries, Mexico, Vietnam, but also China, Malaysia in order to produce their devices on base of our sensors off-grid. So there is no direct import to U.S. of our sensors needed. In the direct business with the U.S., that means this part of the U.S. business, which is definitely go to U.S., there, we benefit on the one hand side from the fact that still today, there is an exemption for U.S. tariffs for all kinds of semiconductors. So that means humidity sensors and some other components we are delivering to U.S. are exempted from U.S. tariffs still today. Nobody knows exactly what happens in the next couple of weeks, but at least at the moment, this is the fact. And on the other hand, we also benefit in the A2L market, in particular, from the fact that we are producing our sensors with a production partner in Mexico. And those modules, A2L modules, they can be imported to U.S. without any taxes -- tariffs due to the free trade agreement between Mexico and U.S., which is still in place for this kind of product. On the other hand, there are some limited exposures where we have to ship long components, so modules from Switzerland to U.S. where the 39% of tariffs is applied. On the other hand, there are some modules they are shipped from Hungary to U.S. with a tax -- tariff of 15%. In both cases, it's not our duty to pay the tariffs because of the agreed Incoterms, it's the duty of our customers to do so. But again, this business, which is directly exposed, is pretty limited in numbers. What we are doing at the moment is also to look into kinds of optimization. So thanks to the fact that we have production sites in Hungary, in China, in Switzerland, but also the production part is in Mexico. We have some degree of flexibility also to optimize the setup. The challenge today is that all kinds of optimizations take significantly longer than all changes in the U.S. tariff policy of the U.S. government. That means we are now looking into kinds of optimizations. We will take decisions as soon as we see that there is some kind of sustainable setup in the tariffs, which is not the case today. I'd like also to lose some words about the indirect exposures. And honestly, I'm more concerned about that rather than the direct exposure. That means the indirect ones is more the fact that all these kinds of uncertainties, these ongoing changes of U.S. tariff setups on and off tariffs and all this will definitely slow down the geopolitical or the macroeconomic situation worldwide, which also ends and results in significantly lower demand. And I think this general effect will definitely hit the company more than the direct exposure of the tariffs. On the other hand, we have already seen a sharp decline of the U.S. dollars and some other currency. They are more or less linked to U.S. dollars against Swiss francs. And also this is a higher exposure for Sensirion rather than the direct exposure. Last but not least, before handing over to Martin, I'd like to shortly summarize our strategic view and also to reflect the H1 of 2025, not by results, but more by a strategic view on what we have progressed in that terms. Again, as you have -- you might have already heard in our Capital Market Day last November, we are following a strategy under the motto, we make a difference in sensing for a better world. And this strategy is actually anchored in our SensiSpirit, our cultural baseline, which is the foundation of all what we are doing. The strategy afterwards is actually divided to 3 different strategic foci. Focus 1 is about our core business. That means about environmental sensors, but also about flow sensing, where we are definitely -- and we have already a very strong position. And we like -- for the next couple of years, we like also to drive our strong position even further to extend and expand our market shares to new applications, but also in the existing applications to higher levels. In that terms, I think a very important contribution is the launch of our first chip-based CO2 sensors in the last couple of months. So this is a huge milestone technically in CO2 sensing. It's the very first one sensor, which can bring reliable CO2 measurements to a chip level only. And this will also unlock a lot of new applications, not immediately within 2 months because these new technological opportunities is now a good base for all our customers to think through new applications to think through new scenarios. This will take some time, but will definitely drive the CO2 sensing market significantly in the next couple of years. And when you go to focus 2, strategic focus 2 is actually about to go to adjacent markets. They are not already addressed by our core business of flow sensing and environmental sensing by leveraging our technologies we have already developed in these adjacent markets. In that terms, we have definitely done a significant progress with the A2L leakage sensors, becoming #1 in this emerging new market. Secondly, also, we are working on the next gen of refrigerant leakages, that means A3 category. A3 is -- has the benefit to be completely climate-neutral, not just reduced but climate neutral, but it just comes with an even higher risk of flammability or even explosion. And therefore, the need of A3 sensors -- leakage sensor is even higher than for A2L, not just limited to the U.S. market, but we assume that even in U.S., in Europe and also in Asia, there will be a higher likelihood of designing in these kind of leakage sensors. We are working on that. We have already launched the first product for A3 leakage detection. On the other hand, I have already mentioned it, also the Kuva acquisition comes to the sector of strategic focus 2, to fuel our strategic target to become also a data business provider for some selected applications with the methane emission direction. And last but not least, strategic focus 3. I'm fully aware that you are particularly interested in learning more about our technological road map. Unfortunately, due to competitive reasons, we cannot be so open about the strategic focus 3. What I can share with you is that we are still working on advanced spectroscopic technologies in order to address a lot of new applications. And there is a lot of other ideas around we are working on, but we cannot yet talk about because of the competitors' situation. That brings me to the end of my short presentation, and I'd like to hand over to Martin for all the financial figures.

Thank you, Marc. Good morning, everyone, and a very warm welcome from my side as well. In addition to Marc's comments on the course of business, with a focus on market development, I will delve deeper into the relevant financial figures for the first half year of 2025. Before I begin, a brief reminder, today's remarks include references to [ non-FER ] performance measures, and unless stated otherwise, we refer to adjusted figures of the previous period for comparability purposes. Now let me start with the headline figures and then go into each component individually. For the first half of 2025, net sales was CHF 184.5 million, as we heard, up 44% year-on-year. Gross margin came in at 51.5%, reflecting a stronger capacity utilization and productivity gains. Operating expenses remained well controlled, with R&D at 16.5% of sales and SG&A at 20.7%, resulting in a total OpEx ratio of roughly 37%. EBITDA was CHF 36.5 million, a margin of 19.8%. Net working capital, we closed at 33.5% of LTM revenue, continuing the previous trend of the previous period. Cash generation was solid. Operating cash flow stayed -- stands at CHF 28.4 million and free cash flow at CHF 15.6 million. We ended the period with cash and cash equivalents of CHF 68.2 million. Now let me put the top line into context. The CHF 56.5 million increase versus the previous period was driven by organic growth, partially offset by FX. With the exception of automotive, we heard that before, which was flat, all other end markets grew by more than 50%. And as mentioned, automotive remained flat, in line with the headwinds that we see in the overall market and after a particularly strong first half year 2024. Industrial growth was powered by the A2L leakage sensor ramp-up in HVAC and a strong contribution from home appliances as well. Medical, we saw a rebound in CPAP and ventilation and also first revenues from new project launches. Consumer returned to growth as distribution channels normalized and demand in China improved. This mix shift is reflected in our H1 sales composition. Automotive stands at 21%, medical 16%, industrial 58% and consumer at 5%. By regions, we are diversified with an APAC share of 37%, EMEA 35% and Americas 27%. As we heard before as well, the Americas benefited most visibly from the A2L program. And as mentioned by Marc, much of the volume is served outside to U.S., which helps on our tariff exposure. Moving on to gross margin. Gross profit margin expanded to 51.5%, up from the previous year. Three drivers explained this step-up. First, a high utilization in component manufacturing across all markets. This was a headwind last year and a tailwind during this period. Second, strong module demand, especially from A2L and CPAP and ventilation recovery. Third, operational productivity measures initiated last year, which are now yielding tangible benefits. It's worth noting here -- to note here that module business typically carries a lower margin than components and the fact that margins improved despite a larger module share underlines the volume leverage and the efficiency gains we achieved. On OpEx, our priority has been discipline and focus while actively chasing opportunities across all strategic foci. R&D was CHF 30.5 million or 16.5% of revenue. We continue to invest selectively across all our 3 strategic focusing -- focus and to ensure a full innovation pipeline and also project pipeline. SG&A was CHF 38.3 million or 20.7%. We continue to invest in customer-facing roles where we see long-term potential. The OpEx cost base grew well below the top line, reflecting active cost management. And this core discipline supported our EBITDA margin expansion, while we continue investing in our innovation engine. And this brings me to the EBITDA development. We reached an EBITDA of 30.6 -- CHF 36.5 million, a 19.8% margin, a significant increase year-on-year. The volume bridge is straightforward. Strong gross profit growth from higher volumes and better utilization, partly offset by targeted investments in R&D and commercial capabilities. The productivity programs implemented over the last years across all functions continued to support the margin trajectory. Now let me step you through the other key elements of our P&L. Operating profit, EBIT, was CHF 26.3 million or 14.2% of revenue. Net income for the period was CHF 10.4 million. Two items here weighted on the bottom line, a negative finance result of minus CHF 10 million, primarily from currency effect due to the substantial appreciation of the Swiss franc, and the proportionate share of losses from our minority investment in Lumiphase. While these effects reduced the net income, they do not change the solid operating trajectory of the business. Moving on to net working capital. Our net working capital increased in absolute terms by CHF 4.9 million to CHF 111.7 million at the end of the reporting period. As a percentage of LTM revenue, the net working capital margin improved to 33.5%, down from 44.1% a year ago and 38.6% at year-end. A few remarks here. Inventory rose modestly, while wafer stock maintained at a target safety level under our assurance policy. We improved the balancing between receivables and payables, with receivables continued having a marginal debtor risk and we do continue to monitor that closely. On investment, CapEx for property, plant and equipment was CHF 9 million, largely for plants and machinery in Switzerland and Hungary. We continue to strengthen our Stäfa, Switzerland footprint and diversify our production footprint across our production sites internationally. D&A showed moderate growth, consistent with our investment cycle. Our balance sheet remains a strong core asset. Cash and cash equivalents increased from CHF 54.4 million at year-end to CHF 68.2 million by the end of June. The equity ratio stands at 81%, underscoring a robust capital structure and ample flexibility to invest in innovation and market expansion, in line with our strategy. This resilience is centered to fund our growth across all 3 strategic foci. Turning to cash flow. Operating cash flow improved significantly to CHF 28.4 million, primarily driven by the return to profitability. Investing cash flow was negative CHF 13.4 million, reflecting CapEx, PPE investments and acquisition of Kuva System within the Sensirion Connected Solutions. We closed H1 with free cash flow of CHF 15.6 million and a cash balance of CHF 68.2 million. In other words, we have normalized cash generation and are comfortable self-funding our investments need while also continue building up cash reserves. And to summarize, we delivered strong broad-based growth with significant gross profit and EBITDA margin expansion and a healthy cash generation. We executed well on A2L, medical recovery and also component manufacturing and productivity, and we continue to fund innovation along our strategy as we heard earlier, to support our short, medium and long-term growth. Our balance sheet and global footprint gives us the flexibility to navigate uncertainty and allocate capital to our most attractive opportunities. And with that, I would like to hand over back to Marc for the outlook and afterwards for the question and answers. Thank you, Marc.

Thank you, Martin, for walking us through the financial details. Well, I'd like to close this presentation with the outlook to make the story short. We confirm the guidance we have already given in March 2025. We narrowed the top line, but that's the only change. That means the midpoint will remain the same. To shortly lose some words about the market conditions. I think the market conditions are going to be more uncertain in the next couple of months. On the one hand side, we see these high uncertainties and high nervosity on the market due to the U.S. trade policy. We have already lost a lot of words about that. Secondly, we see a general slowdown in the global markets, a moderate one up to now, but it's less robust to my assessment than probably 6 or 12 months ago. And another challenge certainly for a Swiss-based company is the strong Swiss francs. We are going to report in Swiss francs. And also this is a challenge for the company despite the fact that we are producing almost half of all our product outside of Switzerland, where we are also reflecting or we are focused or exposed to other currency rather than Swiss francs only. In our business, we expect some kind of an expected slowdown of demand for A2L, which is not a fundamental one. But just as I already explained, this is already expected due to the fact that there is the front-loading first. So the second half of the year is expected to be less strong in A2L compared to the first half of the year without losing any kinds of accounts. This is more kind of a seasonality, which is not a fundamental one, but more due to the ramp-up of the first half of the year. Next year, we expect that the A2L business will be more balanced between H1 and H2. On the other hand, we do see some kind of -- we expect -- we can see it, but at the moment, we do expect some kinds of slowdowns in demand from the Chinese market because there is some partial phaseouts of the stimulus program from the Chinese government. But nevertheless, despite the negative foreign exchange developments, we are reaffirming our forecast or our guideline -- guidance. That means we expect to close the year with CHF 320 million up to CHF 340 million at the EBITDA margin in the mid- to high teens as already communicated in March. That brings me to the Q&A session, and I'd like to hand over back to Lars.

Yes. Thank you very much. We have already some questions on the call. Let me read out the questions. First question is, apparently, the H1 was very, very strong. And the full year guidance didn't change. So Marc, can you please elaborate what you expect in the -- for the second half of the year?