Good morning. Welcome everyone joining us today for the Melexis third quarter 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 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.
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 the third quarter, 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, which means that we become a direct supplier in BYD's procurement ecosystem. We are excited to work even more closely with BYD's team and align our technology roadmap to drive the 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.
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 8% of total sales in Q3. Outside of automotive, sales for energy applications such as solar panel and heat pump, their positive trend. The third quarter 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.
Our commitment to accelerate growth is visible in the product launches of the third quarter, with an even split between automotive and non-automotive applications. In addition to the product I just referred to, a current sensor with a full local Chinese supply chain, we introduce 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.
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.
Thank you, Marc. Sales for the third quarter of 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 results were 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.
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 the quarter of 2025, and an increase of 2% compared to the previous quarter. Now looking ahead. Melexis confirms its second half 2026 outlook, which is for sales to be between EUR 445 million 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.
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 Gaia, could you please give the instructions for the Q&A?
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.
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 second half, I do notice that gross margins were slightly below consensus for the third quarter, and the implied guide for the fourth is also something like 20 to 30 basis points below the street. I would just like to understand if you see any compression in gross margins at all, or is everything exactly as you planned? 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 hasn't raised prices so far in this cycle. Is this going to change next year? Thank you.
Gross margin overall, our main target was to increase the gross margin of working on cost of goods. There we have been successful as expected. Of course, there are small fluctuations from quarter to quarter. There are many parameters that impact our gross margin. But in general, structurally, moving forward, we expect gradual further improvement in gross margin. I wouldn't focus too much on temporary changes from quarter to quarter. Structurally, we expect further improvement going into 2027 on our gross margin.
Thank you. On pricing?
On the pricing, I think it's too early to say. We are in the middle of the price negotiation and the forecast with the customer, and I think it's too early to make a strong statement.
Great. Thank you very much.
The next question is coming from Janardan Menon from Jefferies. Your line is now open. Please go ahead.
Hi, good morning. Thanks for taking the question. I was just 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 chip trigger additional demand because of either pricing or localization? I have a brief follow-up after that. Thanks.
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 four years ago, we had more design win in Europe than in China. Since two years, we have more design win in China than in Europe, and this will be the result of this design win. We have also defined some action two years ago, 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.
Now we have the first product which is fully localized in China, but since one year, we have already the assembly and the test which is localized in China. I think this is something which is recognized by our customers. 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 reasons that explain why indeed we have a good success in China.
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 U.S., or is it a number of customers across both China and the U.S., which is driving this conversion into volume?
The big part of the ramp is indeed linked to a customer in the U.S., but we see also many smaller customer in China, which is growing. Yes, the large effect is due to this customer, but there is a lot of smaller customer that are also ramping, mainly in China. In term 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. The tactile sensor will ramp in a second step. For the time being, the tactile sensor is still in the opportunity pipe increase, maturing, let's say, and the production is really via the joint product.
Understood. Thank you.
The next question is coming from Amelia Banks from Bank of America. Your line is now open. Please go ahead.
Hi. Thank you for taking my question. The first question is on the second half 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 second half, 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.
Yes. 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.
Okay. Thank you. Then just secondly, just how are we thinking about OpEx growth now going forward, particularly R&D? Just should we expect sort of continued investment in these new growth areas going forward?
Yeah,there is no, we plan to keep the R&D as it is today, and we will keep it on 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 from Melexis. Then we will shift some skills toward the future product, but we will keep the R&D cost stable.
Okay. Thank you very much.
The next question is coming from Guy Sips from KBC Securities. Your line is now open. Please go ahead.
Yes, two questions from my side. First is, in your feeling, how much of growth reflects market recovery versus content or share gains because of your 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 the NXP news this morning. NXP remains cautious on automotive. What are you seeing differently at Melexis, and does NXP outlook make you more cautious on the pace of the 2027 recovery? Thank you.
Yeah, Guy, starting from your last question, let's say, on NXP. Yeah, 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 go also in 2027 under 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.
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 products with the-
Your lighting, you mean interior lighting?
Yes, in interior lighting. If I link those products with the application, it is what I mentioned before, the thermal management, it is plenty of drivers, plenty of position sensors. We have launched end of last year, a very good driver product with the SOI technology from 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 function for the same thing.
The next question.
Did I answer the two questions?
I guess. Yeah. I guess you said this. Thank you. The next question is coming from François Bouvignies from UBS. Your line is now open. Please go ahead.
Thank you very much. I just wanted to come back on your comments on the inventories, because I think it's a bit difficult to understand the dynamic in the market right now. You mentioned that you have normalized inventories at your customers. So, if I quote, "Customers have normalized their inventories." That's what you said in the release. I thought the inventories were quite low. If it's normalized now, it would have suggested that they refilled inventories in the last few quarters, which doesn't seem to be the case when we look at your automotive revenues. You didn't 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'm just trying to understand these comments.
Do you mean that they increased inventories in the last few quarters and now the refill is done? Or you just believed it's low and your normalized comment means that it's flat? I just wanted to understand this dynamic here, if that's okay.
Yeah. I did not want to say that the inventory was normalized. What I wanted to say is that there is no change. Since six months, we don't see any change in the inventory of our distributor or of our customer. It's really flat. No increase, no decrease since six months.
When you say in the release that customers have normalized their inventories, you mean flat, normalized, i.e., it increased?
Flat. Yes.
Okay. Just wanted to understand that. There is a possibility of increase of inventories going forward?
Yeah, I would say it is the decision of our customer. It has been
Yeah
that the inventory has been higher in the past, indeed.
Okay. Thank you for the clarification. The second question is on China. I just wanted to understand how you see your business. You have local sales, right? You have export sales.
Yes
different 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 external? So how do you sell your business in China?
Yeah, we do not know. We do not know exactly in which car the product are landing. But what I know by experience, let us say, is the Chinese OEM give preference to the, let us say, non-Chinese IC supplier for their export car. This is quite clear in our discussion, but practically and in detail, we do not know exactly where our product are going to.
Okay. Thank you.
The next question is now coming from Ruben Devos from Kepler Cheuvreux. Your line is now open. Please go ahead.
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? When should we see it in revenue? I'm 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.
There is no LTA, there is no volume or price commitment. It's a pure purchasing agreement. It means that, let's say we are part of their preferred supplier, if I can say it like that. All the purchasing discussion are facilitate because they have been already clear 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.
Okay. Are you seeing other Chinese OEMs also willing to move to the direct agreements with the chip suppliers?
No, this agreement is valid for BYD, and there is no other agreement with other Chinese supplier.
Okay.
I mean the OEM, sorry.
Okay.
And you ask also what kind of family of product, but that cover all 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 at the end.
Okay. 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?
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. 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.
All right. That's it for me. Thank you.
The next question is coming from Marc Hesselink from ING. Your line is now open. Please go ahead.
Yes, thank you. First question is actually on the sequential improvement for the fourth quarter. I think throughout the rest of the year, you've talked quite positively on the sequential improvements. Also talking about a little bit of order pull-ins during the quarters. I would now take the midpoint of the guidance that actually there's very small sequential improvement going into the fourth quarter. I just want to know if that's just seasonality or that you indeed see maybe a little bit less of this pull-in effect or anything linked to that.
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. 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.
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 they have, given what is happening, the idea to lower the value of the inventory a bit?
It is in the first place price decreases at suppliers, but there can also be some mix effect, but mainly price decreases.
Should that then have a positive effect on the gross margin going forward, or is that not the way to look at it?
This is one of the reasons to be confident in further improvement moving on.
Okay.
But we need to add that for some suppliers, and particularly assembly, we also inflation. So we have mixed impact today.
Okay, clear. Thank you.
But overall it is positive.
The next question is coming from Michael Roeg from Degroof Petercam. Your line is now open. Please go ahead.
Good morning. I have a question about pricing, and I also have a question about trade. 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 in between. Is that also the case in your negotiations with your wafer suppliers, one price for the entire year, irrespective of changes in materials? That is my first question.
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.
Okay. Then 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 have not done that. So 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 sensors?
Yeah, from my experience, our competitor has increased their price for different kind of products, for sure. The AI type of product or the memory. This is not part of our product portfolio. I do not see that our competitor has increased their price in our type of portfolio, and for sure, not on the big customer. It is 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 do not have the information that the price has been increased for our type of product.
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?
I can speak for Melexis. We have for the time being on the wafer, there is no capacity. 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. 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 relationship we have with the assembly, there is no drama.
Okay, good. That is clear. The final question is about tax rate, just a small question. I noticed in the past five quarters, the tax rate has been higher than the usual 17%. 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?
No, there can be quarterly deviations, but overall, we expect our tax rate also in 2026 to be in the 17%-18% range. No major deviations to be expected from other years. But quarter- on- quarter, indeed, there can be deviations.
Yeah, but that's also why I took the past five quarters to look at over a slightly longer period, and then I noticed a slightly upward trend of about 150 bps. But that's nothing that will continue or worsen.
No, there is no reason why structurally we would see much. Well, or no, to see it really higher than in the past.
Good. That's it from my side. Thank you.
Thank you.
The next question is coming from Robert Sanders from Deutsche Bank. Your line is now open. Please go ahead.
Yeah, good morning. Maybe a question for Karen, just firstly on the gross margin. In the past you had 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. So as we look into next year, how many of those headwinds sort of go away and how many things do you think will maintain into 2027? Thanks.
Well, 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. You 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 price. I'm thinking 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 are taking some actions where we can to reduce gold, to go from gold to copper to eliminate, but for sure not across the board that we can do that. So that is an effect that is still a headwind today.
Got it.
That also had a negative effect in Q3.
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.
As I mentioned, it is too early to give some accurate figures. For sure, our long-term target is to— I confirm what we say in the CMD. The long-term target is to grow high single digits, but we will not give any accurate answer for next year.
Got it. Thank you.
We have a follow-up question coming from Alexander Peterc from Bernstein. Your line is now open. Please go ahead.
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 the fourth quarter on, or is this a bit more longer term? When should we start to see a difference here?
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, we are after the design, we are in ramping the production.
Excellent. Thank you very much. Can I just ask a very small follow-up on the Snubber product? Do you have any traction there? I think that was a new product for you. Thank you.
Oh, 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. We have also a good discussion on the server, 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. We are now, and Melexis and our customer are in the qualification phase of the product, and we continue to increase the maturity of the opportunity.
That's very helpful. Thank you.
There are no further questions at this time, so I hand the conference back to Marc Biron for any closing remarks.
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 experience strong growth in India, and we enjoy the start of active customer volume ramps in robotic. By combining a high rate of production 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 February 3, 2027. Thank you all for joining us today, and goodbye.
Thank you for joining today's call. You may now disconnect.