Good morning, and welcome, everyone. Joining us today for Melexis' Second Quarter twenty twenty five Earnings Call. I'm Philip Ludwig, Investor Relations at Melexis. And today, I'm joined by your speakers, CEO, Marc Viron and CFO, Karl Van Vliensven. Marc, please go ahead.
Thank you, Philippe. Hello, everyone, and welcome to this earnings call. I will briefly discuss our second quarter performance, then I will hand over to Karen for our financial overview and outlook. Second quarter sales grew sequentially and has included in quarter customer orders. We are able to support this increase of these short term orders because of the inventory we continue to build up in order to be ready for the next upturn in demand.
We have recorded double digit quarter on quarter sales growth in both China and EMEA. Sales for automotive application were 88% of the total sales and I would like to highlight Powertrain sales, which grew both for internal combustion engine and electric motors. In interior lighting, where we have a leading position, sales were also up to double digits. Sales for beyond automotive applications were 12% of total sales. We had mainly outperformance in cooling fans for consumer appliances and data centers.
While today these applications are a small part of our sales, those show important growth opportunities for the future. To capture these opportunities, we continue to launch dedicated new products for beyond automotive application. In the second quarter, we have added a temperature sensor, which enable high accuracy and cost effective solution across household, industrial and AI driven applications. We have also leveraged our Triaxis technology to launch a magnetic position sensor for joystick and human machine interface applications. This innovation allows for accurate operation even in applications with high magnetic interference.
This make it a unique feature for joystick and steering system in heavy machinery, medical device and automation equipment where safety is critical. We have also secured design wins in China and Europe with a good mix of application in all types of powertrain, but also outside the powertrain, for example, in braking and lighting application. I also want to highlight a design win for our inductive position sensor in sophisticated service robots. We are very excited about the high number of sensors and the high number of drivers needed in the robotic market, which is a great potential for Melexis in the coming years. Now, I will hand it over to our CFO, Karen van Griensven, who will comment on our financial results.
Thank you, Mark, and hello, everybody. Sales for the 2025 were €211,600,000 and the euro U. S. Dollar exchange rate evolution had a negative impact of 2% on sales compared to the same quarter of last year and a negative impact of 3% on sales compared to the previous quarter. The growth result was €82,600,000 or 39% of sales.
While volume growth will support margins as it returns, we are not waiting for this and are taking improvement actions. Amongst other, we are planning to bring innovative higher margin products on the market, resolve cost of yield issues, diversify our supply chain and optimize our operation organization and this by concentrating competencies and moving final testing closer to our customers. All of these should lead to better gross margins. In addition, we are closely managing fixed costs to be stable during this time. R and D expenses were 13.6% of sales, G and A was at 6.3% of sales and selling was at 2.3% of sales.
The operating result was €35,700,000 or 16.8% of sales. The net result was €37,800,000 or €0.94 per share. Furthermore, the Melexis Board of Directors decided on an interim dividend of €1.3 gross per share, which will be payable as from October 16. Moving to the outlook, Melexis expects sales in the 2025 to be in the range of €210,000,000 to €215,000,000 And for the full year 2025, Melexis expects sales to be in the range of €835,000,000 to €845,000,000 with a gross profit margin around 39% and an operating margin around 16%, all taking into account a euro U. S.
Dollar exchange rate of 1.17 for the remainder of the year. And for the full year 2025, Melexis now expects CapEx to be around €40,000,000 This concludes our remarks. We can take your questions now. So operator or yes, please go ahead.
Maybe just it's Philip Ludwig again. Just to clarify, we appreciate one question and you stay on the line with one short follow-up. And then please return to the queue so everybody has a chance. Thank you,
The first question comes from Sandeep Deshpande from JPMorgan. My
question is regarding your guidance. Firstly, on your revenue, you are not indicating any significant upward movement in your sales, though you say that the inventory correction in the automotive market seems to be ending at this point. Is there a reason why you don't see more positive momentum on the sales? What are you hearing from the customers at this point in terms of the improvements that are likely to happen in the end markets in the second half of the year? And my second question is on the margin.
The same question on the margin. I mean, when we go back and look at Melexis margin in the past, you've had much higher gross margin. And the leverage that you're seeing on the gross margin into the second half of the year is fairly small. Can we talk a little bit about, I mean, at these revenue levels, you've had higher gross margins before. So why is your gross margin being muted is more muted at this point? Thank you.
Yes. About the revenue, Q1 this year, Q4 last year was probably the bottom of cycle. Now we start to get out of this bottom, then the trend looks good. But also there are a lot of uncertainties. And we also receive a lot of short term orders, as I have mentioned in the introduction call.
It's why the visibility remains quite short term due to this customer order patterns. It's why we gave this outlook based on what we know today.
Yes. And coming back on the gross margins, here I can say that also Q2, have next to obviously the yes, that we don't leverage our operating costs completely because sales are still relatively low. So that operating leverage is missing. But next to that, we also have quite some nonrecurring also in this quarter's costs related to, amongst other, cost of yield. Cost of yield is gradually improving, but it's still strongly impacting today.
Also, revaluation of the dollar impacting our profit. And we also had some nonrecurring costs due to the optimization of our operations organization in this quarter. So therefore, there is at least 4% impact from these costs, which are not structural.
But then why is it not improving in the fourth quarter because you have given guidance for the second half?
We are working on indeed cost improvements. But yes, as we mentioned before, there is a lot of volatility today in the market. It is our best estimate today from today's point of view. Thank you.
Thank you, Sandeep.
The next question comes from Jonathan Mannen from Jefferies. Your line is now open. Please go ahead.
Hi. Thanks for taking my question. I was just going to your comment that the demand improvement that you saw in the second quarter was coming mainly from China and EMEA. Is the lack of U. S.
Improvement because of tariff concerns? Or is it because of the big beautiful bill, which may be restricting EV sales in that market? And given that the EU and The U. S. Have signed a trade agreement, do you think that that clarity will lead to some improvement in your orders from your automotive customers going forward?
It's indeed the improvement is coming mainly from Asia, China and EMEA. It's also our biggest market. The U. S. The pure U.
S. Is 5%, the NALA is 8% to 9%, And the improvement is coming from our big booster or big engine, I would say. And to come back on your question about the impact on the tariff, I don't see the impact in when we discuss with customers and when we discuss about the, let's say, the origin of the order, the tariff aspect has never been mentioned. Then I do believe on the result of Melexis, the tariff has limited influence.
Understood. And and my follow-up is just on the on the robotics, service robotics design win. When when does that go into volume production? And would you regard the volume as significant or is still quite early stage, small volume?
Versus the volume in automotive, it's still very small volume. I think we are at the beginning of the ramp up, I would say. Then it will remain low volume versus the total Melexis result because the robotic market is still small. But when we look at all outlook, let's say, of the robotic, it will for sure increase in the next years, but it will take I mean, it's not for next it's it's not for 'twenty six. When I say the next years, it's years, let's say.
But I think it's very important that we are well positioned in this market today in such a way that we can enjoy the growth in the future.
Understood. Thank you.
The next question comes from Francois Bouvigny from UBS. Your line is now open. Please go ahead.
Thank you. My first question is on your full year guidance. I mean, you didn't provide any guidance for the full year before because of the lack of visibility and now you're in state one. So it would imply that the visibility is improving, I guess, if you are you feel comfortable about guiding the full year. But at the same time, I mean, Mark, you said that there is still some short term orders, short term delivery and visibility didn't seem very clear from when I listened to you.
So why did you reinstate the guidance? When what makes you feel confident about the visibility and further guidance now to get to one again? Is it because the lead times are increasing? Or anything you could share behind this confidence?
I think one aspect is that now we see that we are out of the bottom of the cycle and there is a kind of trend, let's say, it's easier to see to give the guidance when there is a trend. And yes, today, even indeed the order book is as much limited visibility, but let's say, months visibility for a big part of the business, then I think those two combined gave us confidence to give a full year guidance.
Yes. And we have also we gave guidance on the first half year. So half year guidance, we have continued to give. I mean, we just continue to give guidance now on the second half.
For six months, yes.
And what's the bottom, the trend you're talking about, Marc? I mean, what's the data you're referring to? What makes you feel it's a bottom?
Probably because as we mentioned, Marc, indeed Q2 is better than Q1. And yes, what we guide for Q3 is indeed better than Q2. I think then the ordering behavior of the customer, I think we don't have push out anymore. I think I mentioned it already last quarter, but it's still the case. There is really zero push out. And on contrary, we have short term order.
Yes. Maybe to add position sensors, our biggest product line with also longer lead times, we now see the first signs of recovery in that product line as well.
Excellent. And maybe just my follow-up would be on this Q2 performance, which in fairness was quite encouraging. And you mentioned China. I think China, you called negative last quarter. So what was your performance in China this quarter?
And any insight as to why it's recovering all of a sudden? I mean, I would assume if you have an inventory correction happening in China, it's more than one quarter. So I was surprised you're coming back so quickly. So can you, one, give the China growth number and any insight as to what is happening?
First of all, if you indeed, you refer to the quarter to quarter. If we look at the year to year, China is the only region which is growing year to year. All the other regions are still negative, but China is clearly positive year to year. Yes, it has always been a driver for the growth. Yes, then you refer to the backlog or to the inventory.
We have never received huge push out from China. Also in Q4 last year when we have received a lot of push out from our customers. Yes, they did not come from China. They came from other parts of the world.
Thank you very much.
The next question comes from Ruben Devont from Kepler Cheuvreux. Your line is now open. Please go ahead.
Yes. Good morning. Thanks for taking my question. I just had a follow-up on China and Europe where you had stronger design win activity. I was just thinking about like at this stage, what would be the usual conversion into sales if you look at the entire sort of design win activity you've had in these regions?
Because, I mean, they've been quite positive for a few quarters straight. Just curious about the usual conversion into sales and thinking about the visibility maybe a bit more longer term apart from the order book? That's my first question. Thanks.
Yes, the design wins, it's a kind of trigger for the long term business development. The way we record the design win is when we receive the first purchase order, then it's really the start of the ramp up of the business. It's why it gives, let's say, early indicator of the new business. But at the total at the corporate level, there is, for sure, business which are going down. And we know that in automotive, it's yes, when we have a business, it's for a very long time.
It's sometimes difficult to estimate or to assess when the business is going down. And on the other hand, there is the new business which is coming from the design win. It's difficult to answer your question because there is multiple parameters that enter in the equation. And yes, we just know that the objective, let's say, is to grow the pipe of opportunity quarter after quarter. And we see that this pipe of opportunity is growing quarter after quarter.
And at the end of the sales process, the opportunity is transforming design win and then the design win is the start for the ramp of the new business.
Okay. And maybe more short term, like, obviously, apart from maybe the order book you're seeing, Q2 being better than Q1, Q3 guided to be higher than Q2. Like, do you have any sense of how much inventory is still sitting at the distribution or OEM level in these regions like EMEA and China?
Yes. OEM, yes, I will answer OEM later, but at our customer, let's say, which is more the Tier one and the distributor, but we see that the inventory at the distributor is quite flat since more than six months. Then it seems that the distributor are managing their inventory in a healthy way. For our customers, we have seen in Q2, again, a reduction of inventory versus Q1. We have interviewed our main customers, and there is clearly a reduction of their inventory.
Coming back on the OEM, because your question was the OEM. Yes, if we look at the data from the marketing sorry, the market firm, the inventory in China, the car inventory in China is quite stable. It usually increased throughout the end of the year. But yes, now we are at the middle of the year, then the inventory of today is very similar to the inventory of the previous year in China.
Okay. Thank you very much.
Our next question comes from Robert Sanders from Deutsche Bank. Your line is now open. Please go ahead.
Yes, good morning. I was just wondering if you could talk a bit more about your localization strategy in China. Are you seeing Chinese OEMs now preferring European vendors over American analog sensor companies? Know that today, the largest players in China are actually American, not European. So do you think that's going to change?
Yes. In terms of localization, since the beginning of the year, we are producing in OSAT, and the OSAT is the assembly house and the test house. Then for some product, we assemble and we test in an OSAT in China, as an example, the lighting products, but also some latch and switch. And this is ongoing since six months, I would say. In terms of wafer supply, we have tapered our first product wafer fab in China.
And tapered means that the design has been done. We have now that the wafer are under process in this wafer fab. And this is the second step of the localization is to be able to process wafers in China. Then this is, I would say, ongoing. And the first production from this wafer fab is planned, I would say, mid next year, We will have production outside this wafer fab.
This is in of localization where we are. Yes, your question was also about, yes, is there some opportunity, let's say, for European company given the trade war? I would say, yes, it's probably less massive than what you think. But we have indeed some customers, some Chinese customers that are coming to Melexis in order to have, let's say, European supplier. Means that indeed, I think from a localization perspective and from a customer support perspective, I really do believe we are doing the right things in China.
I think we have positive feedback from the customers. I was in China in June, June, visiting different customer, also robotic customer. I think we have a good image in China. We have a good position in China. We have a lot of design win in China.
And I do believe we will benefit, let's say, from this China situation.
Just a quick follow-up on the robotics opportunity. Can you just give us an idea of like how much content there could be per humanoid robot? Or just an idea of the scale of the business, whether it's tens of millions yet or not yet? Could it be larger? That would be a good thing.
Yes. The content is very big, I would say, from Alexis, as big as in a robot than in a car. Of course, the number of robots is much smaller for the time being, but there is some analysis that show that in 02/1940, okay, it's not tomorrow, but in 2040 or between 2035 and 02/1940, we will have as much of robot as a car. And to come back on your question on the number, yes, there is a for example, position sensor in the joint of a robot. We have up to 46 position sensors per robot and the parallelism is very big.
Because there is multiple joints in the robot, you need to move all the part of the robot. And in every moving part, have a joint. And in the joint, you have a position sensor to measure the position and the driver to drive the movement. It's why in term of multiplication, it's very big. But for the time being, we have a limited number of robots.
And I could add also that the robot, it's a kind of electrified moving part. It's a bit like a car of today. It's also an electrified moving part. The drone, the same. And the robot is an electrified moving part.
And all the opportunity linked to the electrification exist also in the robot.
Thanks.
The next question comes from Your line is now open. Please go ahead.
Thank you. First question is a follow-up Mark? On Yes, can you hear me?
It's a very bad line.
Can you hear me better now?
It's not great, but let's try.
Okay. So the first question is a follow-up on the guidance. You guide for the guidance for the third quarter. Does it also include an expectation for these short term orders?
Yes. I think it's indeed the guidance include everything. Yes.
Because in last quarter, you actually had a you beat your own guidance a bit given those short term orders. I mean, I guess that I mean, the visibility on that's even lower than usual, but you already take someone to an account that, that will continue to happen, I guess? Yes. Yes.
Okay. Then the second question is on the gross margin. So you gave multiple short term reasons why it's now under pressure. But if you look further out, is there any reason why you would not go back to, let's say, your usual gross margin of 45% whenever the volumes come back, whenever you have solved your yield issues. Are there any structural reasons when it would not come back?
And what kind of time line would you do you expect it to come back to the measures that you're taking? When will it start to pay off?
Yes, like I mentioned, 4% today is nonstructural. That doesn't add up to 45% yet, but there is also operational leverage that will also help to get closer to the target margin. When this will happen is very difficult because it depends on so many parameters. Like I mentioned, there is quite a bit of volatility in the market. But yes, we stick to our target is 45% gross margin, and this remains our target also today.
Okay.
And to complement, we are working hard on all those parameter.
Yes.
And maybe also to add, we intend to grow with higher margin products as well. It's also important.
Our next question comes from Michal Rhoeg from Degroof Petercam. Your line is now open. Please go ahead.
Yes. Good morning. My first question is about the guidance for Q3 and the full year. If I take the midpoints, then I calculate that your second half sales will be about 5% higher than in the first half. And if I translate that into U.
S. Dollar growth, it's about 12%, which is sort of a constant currency growth. Is that 12% what you had in mind earlier in this year when you assumed significant growth in the second half versus the first half? Or has something changed?
Yes, we confirm your assessment or your calculation. Yes, I think at the end, you look a bit longer term, yes, the fundamental remains positive. And the fundamental that were positive at the beginning of the year are positive to date. We have a lot of product launches. We have a lot of new opportunities.
We have design win. As I mentioned, we are successful in the growing market. Then the fundamental are the same. Then at the end, we should reach what was expected at the beginning.
Okay. That sort of suggests that indeed underlying you think not much has changed. But if I then look at Q3, 2% growth versus Q2 at the midpoint and then sort of flattish in Q4. It doesn't seem a very strong uplift. So has something changed with your view for H2 compared to what you felt at the start of the year?
Nothing has fundamentally changed as I mentioned. I mean fundamentally, the fundamental are positive, indeed in short term that there some headwind, but the long term drivers remain intact. And indeed, are all facing the short term headwind and the short term, let's say.
Okay. Clear. Good. And then I have just two very small financial questions. What were the net interest costs in Q2?
And I noticed that the depreciation costs were up 19% quarter on quarter. Is the Q2 depreciation the new normal going forward? Or was there an exceptional item in there?
So moving first to the what's it?
The interest.
The interest. Yes, that's around 3 a good €3,000,000 is interest cost. And your second question was on the Depreciation.
Yes. And yes, the depreciation is there is yes, that's been I don't have anything specific to mention there. Your question is, is it the new normal?
Yes, indeed. It went from 11.7% to 13.9%, small numbers. The delta is relatively, in absolute numbers, small, but
Yes, it can fluctuate. Yes. Year on year, it's not a surprise because we are investing. We have invested last year. So year on year increase in depreciation is not it's normal, yes. So yes, it takes the new norm.
Okay. So close to 14 run rate a quarter. Good. That's it. Thanks.
There are no more further questions at this time. So I will hand the conference back to the speakers for any closing remarks.
Thank you, operator. Thank you, Philippe. Thank you, Karen also. Before closing, I would like to highlight the Capital Market Day that we will hold on November 5. More detail will be made available in the coming period.
In summary, Melexis is progressively seeing sales trend improving, winning new business with innovation across product portfolio, but also across geographies. We are also supporting our customer by being able to deliver short term lead times. We will report our Q3 results on the October 29. Waiting for it or in the meantime, I wish you a good summer. Thank you for joining the call and goodbye.