Philip Ludwig: Good morning. Welcome everyone joining us today for the Melexis Q3 2026 earnings call. I am Philip Ludwig, Investor Relations, and with us today are CEO, Marc Biron, and CFO, Karen van Griensven. Earlier today, we published our press release and presentation, which can be found on our website. We will start with some brief remarks on the business and financials before taking questions, starting with Marc Biron. Marc, the floor is yours.
Marc Biron: Thank you, Philip. Hello, everyone, and welcome to this earnings call. I will start with an overview of the strategic developments and the operational highlights of Q3, and then Karen will walk you through the financial result and outlook. We made further significant progress in executing our strategy to win in high-growth markets. In China, we signed a master purchase agreement with BYD. It means that we have become a direct supplier within BYD's procurement ecosystem. We are excited to work even more closely with BYD's team and align our technology roadmap to drive the next generation of electric vehicles. We have also introduced our first chip, fully localized manufacturing in China, demonstrating our commitment to match our local customer operational requirements. Order momentum from China remains very strong. Our sales reached a record level in Q3, and the order book points to further sales growth in Q4.
Marc Biron: We have opened a new office in Pune, in India, to expand our local engineering and sales team with the ambition to accelerate growth in this emerging market. In particular, we see significant growth opportunities in two-wheelers, vehicle electrification, solar market, and smart energy metering. Now, turning to some operational highlights. Steering and braking and thermal management application continue to drive our core automotive demand, which has represented 88% of total sales in Q3. Outside of automotive, sales for energy applications such as solar panel and heat pump continue their positive trend. Q3 also marked a major milestone for robotics as our design wins are translating into active customer production volume. These ramps, with solid order already placed for 2027, establish a clear growth trajectory for Melexis.
Marc Biron: Our commitment to accelerate growth was visible in the product launches of Q3, with an even split between automotive and non-automotive applications. In addition to the product I have just referred to, a current sensor with a full local Chinese supply chain, we introduced a cooling fan driver optimized for demanding applications such as the supply system of data centers. We have also introduced a low-cost magnetometer that provide robust tampering protection for smart utility meters, especially well-suited for the Indian market. We have also extended our Triphibian technology, which measures gas and liquid pressure in the liquid cooling system used in the EV and in the AI data center. Looking ahead, we will continue to invest in areas that grow faster, such as thermal management, steering and braking, and the battery management system.
Marc Biron: At the same time, we are also winning new business as we have sharpened our competitive offering, which will translate into increased sales over the next quarters. I will now hand it over to our CFO, Karen van Griensven, to provide more details on our financial results and outlook.
Karen van Griensven: Thank you, Marc. Sales for Q3 2026 were EUR 223.7 million, an increase of 4% compared to the same quarter of the previous year, and an increase of 3% compared to the previous quarter. The euro-US dollar exchange rate evolution had a positive effect of around 1%. The gross result was EUR 91.1 million or 40.7% of sales, an increase of 9% compared to the same quarter of last year, and an increase of 4% compared to the previous quarter. R&D expenses were 13.6% of sales. G&A was 6.5% of sales, and selling was 2.2% of sales. The operating result was EUR 41.3 million, or 18.5% of sales, an increase of 9% compared to the same quarter of last year, and an increase of 7% compared to the previous quarter.
Karen van Griensven: The net result was EUR 31.3 million or EUR 0.78 per share, an increase of 14% compared to EUR 27.5 million or EUR 0.68 per share in Q3 2025, and an increase of 2% compared to the previous quarter. Looking ahead. Melexis confirms its H2 2026 outlook, which is for sales to be between EUR 445 and EUR 455 million, with a gross profit margin around 41% and an operating margin around 18%, all taking into account a euro-US dollar exchange rate of 1.12 for the remainder of the year. For the full year 2026, Melexis expects CapEx to be around EUR 40 million. This concludes our remarks. We can now take your questions.
Philip Ludwig: Thank you, Marc and Karen. For the Q&A, we would request one question and one follow-up at a time. If you have more questions, you can rejoin the queue. Gaia, could you please give the instructions for the Q&A?
Operator: Ladies and gentlemen, if you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six. The first question is coming from Alexander Peterc from Bernstein. Your line is now open. Please go ahead.
Alexander Peterc: Yes. Good morning, and thank you for taking our question. My first question would be actually on your gross margin development. Although you reiterate your guidance in full for the H2, I do notice that gross margins were slightly below consensus for the Q1, and the implied guide for the Q4 is also something like 20 to 30 bips below the street. So I would just like to understand if you see any input compression growth at all, or is everything exactly as you planned. And maybe you can then also provide a comment on how we should think about pricing into next year, as you are one of the rare suppliers in automotive that has not raised prices so far in this cycle. So is this going to change next year? Thank you.
Karen van Griensven: So yeah, gross margin overall, our main target was to increase the gross margin of working on cost of yield, and there we have been successful as expected. Of course, there are small fluctuation from quarter to quarter because there are many parameters that impact our gross margin. But in general, structurally, moving forward, we expect gradual further improvement in gross margin. So I would not focus too much on temporary changes from quarter to quarter. Structurally, we expect further improvement going into 2027 on our gross margin.
Alexander Peterc: Thank you. On pricing?
Marc Biron: On the pricing, I think it is too early to say. We are in the middle of the price negotiation and the forecast with the customer, and I think it is too early to make a strong statement.
Alexander Peterc: Great. Thank you very much.
Operator: The next question is coming from Janardan Menon from Jefferies. Your line is now open. Please go ahead.
Janardan Menon: Hi. Good morning. Thanks for taking the question. I was going to your comments on the China market, where you said sales are strong and Q3 was a record and things are strengthening into Q4 as well. Just wondering what exactly are the drivers of this strength in China. Is it because the car sales numbers seem to be quite weak? Is it that the content growth story in China is stronger than other parts because Chinese OEMs are moving faster on technology transitions, et cetera? Or is it design win and share gains like you are talking about at BYD? In that context, following the launch of the localized produced current sensor that you announced, does that kind of trigger additional demand because of either pricing or localization? I have a brief follow-up of that. Thanks.
Marc Biron: There are multiple reasons. I think that the first one, as you mentioned in your question, I think the electronic content of the Chinese car is by default higher than on the European one. We have won some business in China. I mentioned in the past that the design win in China were very strong. I would say 4 years ago, we had more design win in Europe than in China. But since 2 years, we have more design win in China than in Europe, and this is a bit the result of this design win. We have also defined some action 2 years ago that we call the China strategy. I do believe this China strategy is now paying off. One of the action you mentioned in your question was the local supply.
Marc Biron: Now we have the first product which is fully localized in China, but since 1 year, we have already the assembly and the test which is localized in China. I think this is something which is recognized by our customer. Part of the China strategy was also to create an autonomous commercial team in China that can take the decision themselves independent of the headquarter. The last aspect I would say is our innovation. We see there is a lot of electrification in China. There is a lot of thermal management, as an example. There is also a lot of braking and steering application in China, coming back to the high electronic content of the Chinese car. I think this is all those reason that explain why indeed we have a good success in China.
Janardan Menon: Understood. My follow-up is on the robotic side. You have said that you are seeing volume now. You talked about orders in your Q2 results, and now you are talking about converting into volume ramps. Is this broad-based? Is it mainly coming from one customer in the US, or is it a number of customers across both China and the US which is driving this conversion into volume?
Marc Biron: Yeah. The big part of the ramp is indeed linked to a customer in the US, but we see also many smaller customers in China, which is growing. Then yes, the large effect is due to this customer, but there is a lot of smaller customers that are also ramping, mainly in China. In terms of product for the time being, those are the product in the joint and the position sensor in the joint and also the driver in the joint that are ramping up. But the tactile sensor will ramp in a second step. But for the time being, the tactile sensor is still in the opportunity pipeline increase, maturing, let's say, and the production is really via the joint product.
Janardan Menon: Understood. Thank you very much.
Operator: The next question is coming from Amelia Banks from Bank of America. Your line is now open. Please go ahead.
Amelia Banks: Hi. Thank you for taking my question. The first question is on the H2 guidance. It is based on 1.12 EUR to USD. I just wonder if you could remind me of what it was that you were using before for the H2, and I am just trying to figure out, based on a constant currency basis, has there been any changes in the underlying revenue outlook versus last quarter? Thank you.
Karen van Griensven: Yeah. So we had 1.15 previously in the guidance. Now it is 1.12. The overall impact is limited. It is in the range of 1% for Q4.
Amelia Banks: Okay. Thank you. Just secondly, just how are we thinking about OpEx growth now going forward, particularly R&D? Just should we expect continued investment in these new growth areas going forward?
Marc Biron: We plan to keep the R&D as it is today, and we will keep it under control without change. There is no change planned on this aspect. Because, let's say the product portfolio is shifting, then we need to add specific skills, for example, in mechatronics, for mechanical engineer, because we are developing some module, which is a new discipline for Melexis. Then we will shift some skills toward the future product, but we will keep the R&D cost stable.
Amelia Banks: Okay. Thank you very much.
Operator: The next question is coming from Guy Sips from KBC Securities. Your line is now open. Please go ahead.
Guy Sips: Yes, two questions from my side. First is, in your feeling, how much of your growth reflects market recovery versus content share gains because of your pricing strategy? Is it fair to say that going into 2027, that Western OEM weaknesses could offset the stronger momentum you see in China? The second question is on NXP's news this morning. NXP remains cautious on automotive. What are you seeing differently at Melexis? Does NXP outlook make you more cautious on the pace of the 2027 recovery? Thank you.
Marc Biron: Yeah, Guy, starting from your last question, let's say, on NXP. I would say the product portfolio is rather different versus NXP. We are really on the sensor and the drivers where we see still plenty of growth opportunities. The thermal management is more and more complex, more and more important for the car. The steering and the braking are really part of the novel car and part of the novel platform. Same for the battery. This is, let's say, our portfolio, and we do believe that this type of application will grow also in 2027. The positive momentum that we see in 2026 quarter after quarter, we believe that it will continue in 2027. To answer your first question about what is the mix in the growth. First I would say we don't see at Melexis any effect of inventory.
Marc Biron: When we analyze the inventory of our distributor or the inventory of our main customer, it is stable. Since six months, there is no increase, there is no decrease, and we don't see inventory effect. For the future, I personally do believe that we are winning some new business, and the growth is mainly fueled, let's say, by the new business that we are winning, mainly with our position sensor, with our drivers, and also with the lighting product. Those are the three main growth area. If I link those product together-
Guy Sips: Yes, in interior lighting.
Marc Biron: If I link those products with the application, it's what I mentioned before. The thermal management, it's plenty of drivers, plenty of position sensors. We have launched end of last year, a very good driver product with SOI technology on the silicon carbide. This product has a lot of traction. In braking and steering, it is mainly our position sensor, inductive or magnetic, with a high level of safety level, what we call ASIL D. There is a lot of traction for the braking system. Then we have our lighting product, which have a good traction for this ending.
Guy Sips: Good. Thank you.
Operator: The next question.
Marc Biron: Did I answer the two questions?
Operator: The next question is coming from François Bouvignies from UBS. Your line is now open. Please go ahead.
François Bouvignies: Thank you very much. I just wanted to come back on your comments on the inventories, because I think it is a bit difficult to understand the dynamic in the market right now. You mentioned that you have normalized inventories at your customers. If I quote, "Customers have normalized their inventories." That is what you said in the release. Now, I thought the inventories were quite low. If it is normalized now, it would have suggested that they refilled inventories in the last few quarters, which does not seem to be the case when we look at your automotive revenues. You did not really outperform your seasonality significantly. Other comments from your peers suggest that either inventories are very low or some are already increasing inventories as we speak. I am just trying to understand these comments.
François Bouvignies: Do you mean that they increased inventories in the last few quarters and now the refill is done? Or you just believe that it is low and your normalized comment means that it is flat? I just wanted to understand this dynamic here, if that is okay.
Marc Biron: Yeah. I did not want to say that the inventory was normalized. What I wanted to say is that there is no change, and since six months, we do not see any change in the inventory of our distributor or of our customer. It is really flat. No increase, no decrease since six months. I would say-
François Bouvignies: When you say in the release that customers have normalized their inventories, you mean flat. It is not normalized, i.e., it increased.
Marc Biron: Flat. Yes.
François Bouvignies: Okay. Just wanted to understand that. There is a possibility of increase of inventories going forward.
Marc Biron: I would say it is the decision of our customer.
François Bouvignies: Got you.
Marc Biron: The inventory has been higher in the past, indeed.
François Bouvignies: Okay. Thank you for the clarification. The second question is on China. I just wanted to understand how you sell there, your business. You have local sales, and you have export sales.
Marc Biron: Yes
François Bouvignies: different share between the two? Do you sell mostly on the exported cars, or are you agnostic, meaning you sell to a car and you do not know if it is going to be sold locally or externally? So how do you sell your business in China?
Marc Biron: Yeah. We don't know. We don't know exactly in which car the product are landing. But what I know by experience, let's say, is that the Chinese OEM give preference to the non-Chinese IC supplier for their export car. This is quite clear in our discussion, but practically and in detail, we don't know exactly where our products are going to.
François Bouvignies: Okay. Thank you.
Operator: The next question is now coming from Ruben Devos from Kepler Cheuvreux. Your line is now open. Please go ahead.
Ruben Devos: Yeah, good morning. Thank you. I just have one on the BYD agreement. Just curious whether you could tell us a bit more about that agreement. Does it come with volume or pricing commitments? What type of product families does it cover? And when should we see it in revenue? I am also interested whether that has any type of changes for your pricing exposure to BYD now that you have a direct agreement like this. Thank you.
Marc Biron: There is no LTA, there is no volume or price commitment. It is a pure purchasing agreement. It means that, let us say, we are part of their preferred supplier, if I can say it like that. All the purchasing discussions are facilitated because they have been already cleared out in this agreement. Thanks to this, we have an easier access to the engineer, easier access to the innovation team in order to launch or to design in new products in the car.
Ruben Devos: Okay. Are you seeing other Chinese OEMs also willing to move to the direct agreements with the chip suppliers?
Marc Biron: No. This agreement is indeed valid for BYD, there is no other agreement with other Chinese supplier.
Ruben Devos: Okay.
Marc Biron: I mean the OEM, sorry.
Ruben Devos: Okay.
Marc Biron: You ask also what kind of family of product, but that cover the full Melexis product. Indeed, we see since we have made this agreement that we have, let's say, more access with the engineer. We have more discussion with the engineer, in order to build more business with them.
Ruben Devos: Okay. Then, maybe just on your own inventory. I think that one came down to EUR 260 million, roughly. Earlier in the year, I think you talked about holding it stable or even higher. Is that lower level deliberate, or is demand pulling it down faster than planned? Maybe what do you see by year-end, in terms of your own inventory management?
Karen van Griensven: Mm-hmm. Yeah. Structurally, we want to rather further increase our inventory to support growth. Over the last quarters, the volume didn't come down so much, but it's more the value that has come down. But this effect is now fading out, so volume increases will become more visible moving forward. It's still the intention to rather increase the inventory than deplete, to be ready for further growth moving on.
Ruben Devos: All right. That's it for me. Thank you.
Operator: The next question is coming from Marc Hesselink from ING. Your line is now open. Please go ahead.
Marc Hesselink: Yes, thank you. First question is actually on the sequential improvement for Q4. I think throughout the rest of the year, you have talked quite positively on the sequential improvements, also talking about a little bit of order pull-ins during the quarters. If we now take the midpoint of the guidance that actually there is very small sequential improvement going into Q4. Just wanted to know if that is just seasonality or that you indeed see maybe a little bit less of this pull-in effect or anything linked to that.
Marc Biron: There is no real change in our view that there are still indeed a bit of pull-in within the quarter, as it was in the past. It is why we have confirmed our guidance because we do believe that this is the right guidance, you see. What is perhaps important to mention, that we do not see push-out toward the end of the year.
Marc Hesselink: Okay, that is clear. Thanks. The second question is actually a follow-up on that inventory question just before. You mentioned that the value came down. Can you explain what it is? Is that the mix of the product or is that, given what is happening, yet you had to lower the value of that inventory a bit?
Karen van Griensven: It is, in the first place, price decreases at suppliers, but there can also be some mix effect, but mainly price decreases.
Marc Hesselink: Should that have a positive effect on the gross margin going forward, or is that not the way to look at it?
Karen van Griensven: This is one of the reasons to be confident in further improvement moving on.
Marc Hesselink: Okay.
Karen van Griensven: We need to add that for some suppliers, and then particularly assembly, we see also inflation. So we have mixed impact today.
Marc Hesselink: Okay, clear. Thank you.
Karen van Griensven: Overall, the effect is positive.
Operator: The next question is coming from Michael Roeg from Degroof Petercam. Your line is now open. Please go ahead.
Michael Roeg: Good morning. I have a question about pricing, and I also have a question about tax rates. First, pricing. You mentioned you are still in negotiations for the prices for 2027. If I am not mistaken, you typically negotiate prices which are then set for the entire year without changes in between. Is that also the case in your negotiations with your wafer suppliers, one price for the entire year, irrespective of changes in raw materials? That is my first question.
Marc Biron: Yeah. The goal or the principle is to define indeed the price for the year, depending on the volume. Usually, we have a matrix price versus volume. This is the way it is done.
Michael Roeg: Okay. About your price negotiation with your customers. One price for the entire year. Some of your competitors have raised prices several times in 2026. You haven't done that. I was wondering, is that something that drives some customers more towards you because suddenly you become more affordable versus the competition? Or have your competitors only raised prices for other types of chips than sensors?
Marc Biron: Yeah. From my experience, our competitor has increased their price indeed for different kind of products, for sure. The AI type of product or the microcontroller or the memories. This is not part of our product portfolio. I don't see that our competitor has increased their price in our type of portfolio, and for sure, not on the big customer. It's not impossible that for their small customer, they have increased the price, but for the big customer that we have in common with our competitor, I don't have the information that the price has been increased for our type of product.
Michael Roeg: Okay. Generally, if you and your competitors would like to raise prices, then there would have to be very high utilization and shortages. Is there any kind of indication on what the utilization rates are for sensors at the foundries?
Marc Biron: I can speak for Melexis. We have, for the time being on the wafer, there is no capacity discussion. We have enough capacity of what we need at our foundries. First of all, we have diversified our foundry offer, and we have also prefinanced the capacity increase of X-FAB, and for those reason, we do not see capacity bottleneck in the foundry. On the assembly house, it is clear that it is a bit more tense, but together with our inventory, together with the good relationship we have with the assembly, there is no drama.
Michael Roeg: Okay, good. That is clear. The final question is about tax rate, just a small question. I noticed in the past five quarters that the tax rate has been higher than the usual 17%. So I was wondering if the tax rate is going up because of the change in the sales mix more towards China, or whether perhaps there have been changes in tax incentives. Has something changed or is it just coincidence?
Karen van Griensven: No, there can be quarterly deviations, but overall, we expect our tax rate also in 2026 to be in the 17% to 18% range. No major deviations to be expected from other years. But quarter on quarter,
Michael Roeg: Okay
Karen van Griensven: indeed, there can be deviations.
Michael Roeg: Yeah, but that is also why I took the past five quarters to look at over a slightly longer period, and then I do notice a slightly upward trend of about 150 bips. But that is nothing that will continue or worsen.
Karen van Griensven: No, there is no reason why structurally we would see much. Well, no. To see it
Michael Roeg: Okay
Karen van Griensven: really higher than in the past.
Michael Roeg: Good. That is it from my side. Thank you.
Marc Biron: Thank you.
Operator: The next question is coming from Robert Sanders from Deutsche Bank. Your line is now open. Please go ahead.
Robert Sanders: Yeah, good morning. Maybe a question for Karen, just firstly, on the gross margin. In the past, you had quite a few headwinds from the X-FAB LTA, partly yield, partly because you maybe didn't buy enough wafers. You had the inventory revaluation, you had gold price, you had tester utilization challenges. As we look into next year, how many of those headwinds sort of go away, and how many of those things do you think will maintain into 2027? Thanks.
Karen van Griensven: Some headwinds like cost of yield indeed has improved a lot. There is still further improvement possible, but a big part of the improvement is behind us. What I mentioned, the supplier cost roadmap will for sure help with the gross margin next year. We also have been working on the footprint. The effect of that will also be felt next year. But there are other headwinds like the gold tether. That is something that's very unpredictable. If gold goes up further, then it will have a negative effect on our gross margin. This is something that we have to. We are taking some actions where we can to reduce copper, to go from gold to copper to eliminate, but it's for sure not across the board that we can do that. So that is an effect that is still a headwind today.
Robert Sanders: Got it.
Karen van Griensven: It also had a negative effect in Q3.
Robert Sanders: Got it. Maybe just a question on the growth into next year. I know you are not going to give a guidance, but at your CMD, you talked about high single-digit growth as being your goal. Given that you appear to be ordering quite aggressively from X-FAB and you are not raising prices, should you at least look to outgrow the market next year after you had lost some share in the past? Can you at least say whether you think you will outgrow your addressable market? Thanks.
Marc Biron: Yeah. As I mentioned, it is too early to give some accurate figures. Yeah, for sure, our long-term target is to, I confirm what we say on the CMD. The long-term target is to grow high single digits, but we will not give any accurate answer for next year.
Robert Sanders: Got it. Thank you.
Operator: We have a follow-up question coming from Alexander Peterc from Bernstein. Your line is now open. Please go ahead.
Alexander Peterc: Yes. Thank you for the opportunity to ask a follow-up. It was just regarding BYD. Do you have any design wins already there that will generate traction quite soon from Q4 on? Or is this a bit more longer term? When should we start to see a difference here?
Marc Biron: No, we have even more. First, we had an historical business with BYD, which is more current sensor, but we have new business that will start in 2027, linked to magnetic position sensor, inductive position sensor, and latch and switch for a specific application. But we are, in some case, after the design win, we are in ramping the production.
Alexander Peterc: Excellent. Thank you very much. Can I just ask a very small follow-up on the snubber product?
Marc Biron: Yeah
Alexander Peterc: Do you have any traction there? I think there was a new product for you. Thank you.
Marc Biron: We have good. Again, if we consider, let's say, the maturity of the funnel of the snubber, we have still very good traction with customer in China, very good traction with customer in Europe. We have traction in automotive for the battery, but we have also a good discussion on the AI server. We plan to launch the product soon, and I think the first production will start, I would say, in summer 2027. Melexis and our customer are in the qualification phase of the product. We continue to increase the maturity of the opportunity.
Alexander Peterc: That's very helpful. Thank you.
Operator: There are no further questions at this time, so I hand the conference back to Marc Biron for any closing remarks.
Marc Biron: Thank you, operator. To summarize, Q3 demonstrates that our strategic choices are delivering tangible results. We achieve in-line financial performance with sales and margin growth. We have reached a record sales in China. We experiment strong growth in India, and we enjoy the start of active customer volume ramps in robotic. By combining a high rate of product release with continued cost discipline, we are taking the right step to execute against our long-term target. We look forward to updating you on our full-year result on 3 February 2027. Thank you all for joining us today, and goodbye.
Operator: Thank you for joining today's call. You may now disconnect. The host has ended this call. Goodbye.
