Good afternoon, all. Thank you for joining us today. I am Shamina Bhaidjy, Vice President for Investor Relations at Lectra, and I am joined today with Caroline de La Bretesche from the IR team. Before we begin, please note that this webcast is being recorded and that the replay will be made available on our website. Yesterday, after market close, we published our third quarter and nine months 2026 results, and I hope you had the opportunity to review our detailed financial report. During this webcast, Daniel Harari, our Chairman and CEO, and Olivier du Chesnay, our Chief Financial Officer, will present the key highlights of the period and the outlook for 2026 full year. Their presentation will be followed by a Q&A session. You may either ask your question live or submit them via the Q&A tool, in which case I will be happy to relay them.
With that, I am pleased to hand over to Daniel.
Hello, everyone. Good afternoon. Good morning for those in the U.S. Today, we are going to cover the key highlights of the last three months and the first nine months of 2026. Olivier will present the results in more detail, the balance sheet, the free cash flow, and I will come back for the 2026/2028 financial objectives. Obviously, the market interpreted our result as poor or at least not giving enough visibility on the future. The way we view the situation as of today is that we have persistent economic uncertainty, and the situation worsened over the last few months everywhere in the world for many reasons that you perfectly know. We therefore have limited visibility on non-recurring revenue.
Despite that, we had continuous ARR growth below the numbers we would have expected at the beginning of the year, but still quite strong growth in ARR for the SaaS offer, of course. We have made significant efforts during the last three months especially, but since the beginning of the year, to improve what we call structural EBITDA margin, and thanks to price discipline, the margin have been preserved and the gross margin is up compared to last year and the previous quarters. We could adjust very rapidly the manufacturing process, and we optimized the resources. We reduced the number of people in the company by about 2% every quarter, so 6% since the beginning of the year. In term of balance sheet, we have a very strong balance sheet, thanks in particular to significant nine-month cash flow, and we have an efficient working capital management.
For years, we have been managing the company with a negative working capital. In terms of innovation, we continued to invest in R&D significantly in AI, and we had new offers that were on the market last quarter. If you look at the R&D, the main points are that we have been innovating a lot and growing our SaaS offer. Most of the innovation have been put on the market at the end of Q3, and so are not bearing any significant revenue in Q3. We have also integrated more and more AI into our offers. You know that Lectra has been adopting AI for the last 40 years and agentic AI for the last three years, and this enables also to accelerate our software development thanks to AI, where a significant part of the code is today developed with AI.
As you know, this is one of our main goals to move to developing code automatically through AI in the coming months and quarters. We launched Apogy, a significant product for Lectra, three years of R&D, about EUR 24 million, to which you need to add the acquisition of Gemini that happened five years ago for about EUR 14 million. This is one of our major offers for the future, which will replace our flagship CAD offer, but the CAD offer is about only 15% of Apogy perimeter, so it will be an occasion to upsell to Apogy progressively our existing customer. We also adopt a significant plan to use AI internally with three levels.
The most important one is that every development done by R&D will use AI, and we consider that after a ramp-up that will go until the end of 2027, we will divide by five the time to develop code and the energy to develop code. Roughly speaking, we have 700 people in R&D. About 150 people are developing code full-time, so this means that we can develop the same code with only 30 people, and we have decided to use part of the productivity gains to accelerate our innovation plan to put a barrier for our competitors to attack us, and also to reduce our cost progressively over the next few quarters. We also acquired the majority of Caron Technology. Caron is an Italian company that has been a partner of Lectra for a long period of time.
This alliance enables us to accelerate our R&D plan, because Caron's product completes the cutting room of Lectra with everything that is needed to prepare the fabric to cutting. This enables us to better balance our R&D teams on the cutting room projects to improve our existing equipment, which will be the next step, in fact, on the merge between Lectra and Gerber, as we will have only one offer that would replace the two existing legacy offers of Gerber and Lectra. I leave the floor to Olivier for more details.
Good afternoon. Good morning, everyone. I will lead you through the Q3 and nine months results for 2026, and then the balance sheet and cash flow. Just a bit of a take on methods that we apply on those slides. When you look at the bottom right, you can see that, as usual, when we present numbers of a given year, 2025 or 2026, we do it using the exchange rates of those years. When we present the comparison between one year and the other, we use last year rates. In Q3, we also neutralize the effect of the perimeter entrance of Caron into Lectra for two months. That being said, I come back on the recurring activity, as you can see from the top right of the slides. The first indicator that we follow is the growth of the ARR, annual recurring revenue.
As you can see, we move from the beginning of the year, EUR 97.2 million to EUR 105.2 million. A growth in the first nine months of 8%. When you look inside those two bars, you can see that the third quarter was the biggest growth in terms of value and also percentage of ARR that we got since the beginning of the year. We had a start at EUR 2.8 million, then followed by a fairly slow Q2 of EUR 1.6 million, and the Q3 is our biggest number. When we convert those numbers of ARR, EUR 105.2 million at the actuals balance sheet rate of the 30th of September, we are also publishing EUR 106.5 million as the ARR that we have. If we look a bit at those numbers, first of all, Q3 is quite strong.
Inside Q3 and inside the first nine months, we know that Launchmetrics had a difficult start of the year, but they regained momentum in Q3. They are still below the average of the group of 8%, but they are regaining momentum. All the other offers, namely TextileGenesis, Kubix Link, or Valia, are growing significantly above the average, between 10% and 20% for the first nine months. If I come back to what we did last year, last year at the same period of time, after nine months, we were at +9%, and we finished at +14%. Compared to last year, we are, let's say, behind, but not that far behind. If we look now at the revenue or the recurring activities, the recurring revenues is always composed of two subgroups, let's say, the recurring contracts revenues and the consumable and parts revenues.
If I go to the first part, which is on the middle of the slides, you can see that we continue to grow the recurring contract revenues by 3%. That is 3% growth in Q3, and that is the same number in the first nine months. You have a bit more detail on the right side of this slide, where you see that the SaaS subscriptions is, let's say, triggering that growth. You have, of course, the software maintenance contract that is negative in terms of evolution, knowing that now most of the software that we sell are sold under SaaS.
Finally, on the right side, you see the equipment maintenance contract that are stable versus last year, so a bit under pressure, given the fact that we have a bit lower level of new system orders, but also the fact that we have discontinued some of the old product range, and the contract attached to it have been canceled. This is also impacting the growth for this year, 2026. At the bottom of this slide, you have the consumable and parts. The consumable and parts, disappointment in Q3 because we are at -5%. As a reminder, we had started the year in Q1 with -1%, followed by +2% in Q2. So the -5% doesn't confirm the growth that we had started to see in Q2.
We believe that it's more, let's say, a conjunctural, and a quarter is always small, so it's not really a trend. In this quarter, we were also negatively impacted by the decrease in non-core activities, which has been sharper in Q3, and a weaker Asia-Pacific activity, knowing that Europe and Americas were a bit stronger. They were stable. I started to talk about the recurring activity. Now I'm moving to the non-recurring activity. The non-recurring activity, we always start now with the equipment orders. As you can see here, the equipment orders here also is a disappointment, because we landed at EUR 18.9 million for Q3. When you compare to last year, it is -10%, because last year, in the last three quarters of 2025, we were having every quarter EUR 20 million of orders.
For the first nine months, we are at -9%, at EUR 62.9 million. When I look at those first three quarters of 2026, one quarter is always very short. Now, if you look at the average of what we've done in the first three quarters, we are better than the last three quarters of last year. Last year, we were averaging at EUR 20 million. This year, in the first three quarters, we are averaging at EUR 21 million. But of course, the EUR 18.9 million of Q3 is more of a disappointment. When we look now at those results, still on the equipment orders, but by region. The first thing is that when you look at the first bar in dark blue, you can see that if you look just at one quarter, it's very volatile.
If I go just on the percentage of growth, you look at the right side, rest of the world, where we put Africa, Middle East, Egypt, Turkey, is at -55%. In the center, you have Europe at +68%. So you can see that this is very volatile when you look only at one quarter. What is more interesting is to look at the second line, which is the first nine months cumulated. First of all, Asia-Pacific remains the biggest area where we sell equipment. It represents 43% after nine months, and it's decreasing 21%, especially due to the first quarter, where it was still before the discussion on the tariffs. Of course, we know that after April 2, 2025, that's when we started to see a big decrease in Asia-Pacific.
If we look at the two other big regions, Americas and Europe, they are both growing after nine months. A bigger growth in the Americas and followed by Europe at +9%. I remain still on the same type of item, which is the equipment orders, but this time by market. Again, by quarter, not really relevant, that is quite small. But if you look at the second line, which is over nine months, if I look from right to left, on the right side, you can see that the other industries, where we have everything related to aircraft industries, military industry, but kind of a lot of industries together, we are growing 40% after nine months. And those industries are usually less impacted by the tariff discussion because they are usually local. Then you have, if I'm moving back to the left, the furniture, where we are growing 32%.
It's still a small number, but after two years of decrease post-COVID, we can see that we see a bit higher investments. Then you have our two main markets, where basically the level of orders are reflecting the end market difficulties. Automotive is the one that is the most impacted, and we decreased 22% on the first nine months. Fashion is a bit more resilient. There is a bit more traction on fashion. You can see also on the Q3 number at +5%. But fashion, we are at -15% for the first nine months. I'm done with the orders. I move to the revenue. The non-recurring revenue is really a consequence of the equipment orders. As you can see, the Q3 level of non-recurring revenues was -7% at EUR 26.6 million. And for the first nine months, we are at -21%.
The -21% is really the consequence of the first quarter, where we were severely down. When you look after, on the right side of this slide, you see that inside the non-recurring revenue, you have the first bucket that is the equipment, -7% and -23%. Then you have training consulting that is a bit more resilient, and the other non-recurring services where we put also now the software sold as perpetual licenses. We still have a few software sold like this. The zoom on the equipment below is, let's say, the mirror of what we see on the orders. Last year in Q1, we had EUR 29.4 million of revenue in Q1. This year, we had a very bad start of the year at EUR 13.7 million.
Now, if we look at Q2 and Q3 of this year compared to Q2 and Q3 of last year, you can see Q2 is EUR 23.2 million compared to EUR 24.4 million, and Q3 at EUR 20 million versus EUR 21 million. Since we recognized in revenue EUR 20 million and we took EUR 18.9 million in orders, we've decreased a bit the backlog at the end of September. Okay, so at the end of June, the backlog was around EUR 23 million. At the end of September, it's EUR 21.4 million. The good part is that of those EUR 21.4 million of backlog, 90% of those are expected to trigger revenue in Q4 with the expected dates of delivery of those orders in the backlog. So, we've gone through the indicators of orders, indicators of revenue. We go now to the full P&L.
You have the P&L on the third quarter on the left and on the first nine months on the right. The first two lines, you can see that despite the revenue decrease, respectively -2% in Q3 and -4% in the first nine months, the gross margin value is decreasing at a lower pace or even increasing in Q3. That means that we are actually increasing the gross profit margins. You can see below, they are at 74.5%, both on Q3 and nine months, and they are increasing by 190 basis points. We've been good in acting on pricing discipline on the top line. We've reduced also the factory operation by making sure that we would adapt to the volume. When I look product line by product line, we have actually increased the gross profit margin for every product line.
I also mention at the bottom that we have registered EUR 0.8 million of U.S. tariff refunds. That is almost all of what we have claimed for, and that's a minor impact on the EBITDA margins, about 25 basis points on the year-to-date number. We go down to the P&L, the overhead costs. We have decreased them 2%. Again, based on what Daniel was saying at the beginning of the call, we've decreased the overheads, we've decreased the headcount. We've more than offset the inflation, and we have also inflation on some of the other costs, such as subscriptions or AI operations. When we go down, despite the decrease in revenue, you can see that the EBITDA is very strong and very solid. We are growing 10% on Q3. We were actually growing 25% on Q2.
Year-to-date, we are -3% due to the first quarter results that was also driven by the low run non-recurring revenues that I mentioned on the previous slides. We have also improved the net income. There, we have improved the use of tax loss carryforward by doing restructuring on some of the entities, and also through the fact that Launchmetrics is now making profits, and so they consume loss carryforward, which was not the case when we acquired them. Overall, the top line that is decreasing, but a good management of all the line items below the top line, which make so that the EBITDA is resisting well. As you can see on the bottom right, the security ratio now reach, after nine months, 99%. Our targets that we expressed for 2028 want to reach more than 100%.
The summary of the EBITDA variation is on this slide. You have on the left side the EBITDA of the first nine months of 2025. On the right side, the EBITDA of the first nine months of 2026 at actual rates. You can see that so far in the first nine months, the dollar is impacting us negatively. That will probably reverse in Q4 if the dollar remains at 1.11. So far, for the first nine months, the dollar this year was at 1.16 on average, whereas it was at 1.12 last year. Between those two numbers at comparable exchange rates, 61.6 on the left and 59.8 on the right, we have separated, as we do since the beginning of the year, two components.
On the left side, the short-term cyclical impact of some of the items. Here you see really the impact of the non-recurring revenue activities on the EBITDA, EUR -11 million. Despite the fact the consumable and parts revenue is decreasing in revenue, actually, we've improved the gross profit margin rates on the consumable and parts, so the impact is nearly stable, EUR +0.7 million, and we have a limited amount on the variable overhead costs. On the right side, you have the structural impact. The structural impact is really the benefits on the EBITDA level of the growth of the recurring contracts, EUR 5.5 million, and the efforts that we are making on the fixed overheads, EUR 3.6 million.
Those two numbers sum up to EUR 9.1 million, which at the bottom of the slide is a contribution of the structural impact of 237 basis points on the EBITDA margin after nine months. If I switch now to the balance sheet and the free cash flow. The free cash flow has been very strong in Q3, and we have catch back on the free cash flow for the first nine months. We are at EUR 36.4 million, so a very strong performance on free cash flow despite the economic environment. Daniel mentioned it. We have a strong process of cash collection despite difficulties at some customers, and we are working on the optimization of the working capital and the inventories without damaging the service to customers.
The working capital requirement is negative, as in the previous years, and it's even improving because it's negative by more than EUR 14.4 million versus what we had at the end of December 2025. On the balance sheet, the equity is still strong at [34], sorry, EUR 347.9 million. That includes a treatment of the share buyback for EUR 25 million. That basically explain the decrease between the 31st of December and the 30th of September 2026. At the bottom of the slide, you see the net debt. The net debt has increased from EUR 21 million to EUR 62 million, mainly due to the fact that we've done a drawdown of EUR 35 million on the revolving credit facility. But that's still a strong performance because we've increased EUR 40 million, the net financial debt.
But you can see on the right that we disbursed, we cashed out nearly EUR 80 million to reach 76% of Launchmetrics ownership, 75% of TextileGenesis to do dividends. The cash out related to the share buyback is EUR 20 million, but we have a commitment of EUR 25 million. That's why that's EUR 20 million and EUR 25 million are working together. I'll now let the conclusion to Daniel.
Thank you, Olivier. If we go back to what we said in February, we were expecting 15% growth in ARR on SaaS offer, which would contribute to a 5%-8% yearly growth on recurring contracts. We spoke about continued cost optimization, a structural increase of EBITDA of 120-180 basis points, and a 2 points-3 points improvement in security ratio. Where are we today? On the SaaS ARR, we know we will have difficulty to reach the 15% this year. It was a three-year plan, so we are more confident on what will come in the next two years. But as of today, for 2026, we should be a little below the 15%. Regarding the contracts, as we are at +3% after nine months, it seems difficult to reach the 5%. We will be below this growth in term of recurring revenues.
We have accelerated cost reduction further than what we have envisioned at the beginning of the year. This explains why we are better regarding the structural improvement of the EBITDA, and we should exceed the 180 basis points in 2026. We are, after nine months, at 237 points. This seems to be quite promising for the EBITDA at the end of the year. Also, we confirm our security ratio target to be above 100% in 2028, knowing that in the first nine months, we increased two times faster at what was planned at the beginning of the year. Roughly speaking, a very good control of the expenses, the margin, but a disappointing level of orders this quarter and a disappointing trend on nearly all the lines on revenue.