Good morning, ladies and gentlemen, and welcome to the Elmos Semiconductor SE conference call regarding the results of Q3 2026. The conference will be recorded. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation. Let me now turn over the floor to your host, Dr. Arne Schneider, CEO.
Hello, everyone, and welcome to the Elmos conference call on our third quarter and nine-month results for 2026. Thank you for joining us, and thank you for your continued interest in Elmos. We delivered another strong quarter with dynamic growth, improved profitability, and strong cash generation. Over the first nine months, revenue increased by 16.4%, while operating EBIT rose by more than 30%. Adjusted free cash flow increased strongly by more than 60%. These results reflect sustained customer demand, disciplined operational execution, and the scalability of our fabless business model. Our results demonstrate that Elmos can combine attractive growth with high profitability and strong cash generation. We are continuing to invest in the opportunities ahead while keeping capital expenditures at a low level. Let me now start with an update about the current market environment and further growth opportunities. Demand for our analog mixed-signal semiconductor solutions remains high.
Our products address essential functions in modern vehicles, where customers continue to seek greater efficiency, safety, comfort, and intelligence. Due to the ongoing 8-in wafer allocation, we continue to monitor foundry capacity and developments across the semiconductor supply chain very closely. Demand for our analog mixed-signal automotive semiconductors remains robust, while 8-in wafer capacity is tight for several months now. AI-related power applications for data centers use a good portion of the existing 8-in capacity, forcing foundries to allocate their capacities for the other industries. Against the backdrop of ongoing wafer capacity constraints, our September announcement to amend the supply agreement with Littelfuse and to fully load the Dortmund fab until the end of 2028 provides us with additional 350-nm capacity. It gives us also greater flexibility, as our 350-nm technology is sourced from three foundries.
In addition, we have expanded our partnership with SK keyfoundry on 130-nm technology, and we were able to secure future wafer capacity through 2037. We also work with our foundries to cover all real demands of our customers, and these efforts are very promising. Elmos has successfully navigated similar allocation situations in the past. Based on our experience during the 2021 to 2023 allocation cycle, which, by the way, was far, far more severe than the situation we are facing now. We do not expect significant delivery issues, provided our customers place orders in line with the requested lead time of 26 weeks- 30 weeks. We also expect to pass on allocation-related cost increases through disciplined and balanced pricing actions. Our fabless business model, diversified manufacturing partnerships, and longstanding relationships with foundries and customers position us well to navigate this environment very successfully.
At the same time, the long-term drivers of our business remain firmly in place. Electrification, advanced driver assistance systems, and autonomous driving, software-defined vehicles, and increasingly intelligent vehicle architectures are raising semiconductor content per vehicle. This creates a strong basis for growth beyond short-term movements in vehicle production. By the way, we are still curious to see when the flying Teslas will finally take off on public roads, but that may, of course, need more than a few extra semiconductors. Our project pipeline remains very strong, with new business wins across all regions and applications. Year- to- date, we have secured projects with a lifetime volume of more than EUR 665 million. This is around 95% of our annual design win target. These wins move into series production over the coming years. They will lay a powerful foundation for sustained growth.
Our growth opportunities also extend beyond established automotive applications. We see promising potential for our mixed-signal expertise in new technologies, including robotics and cybersecurity. These markets are at an early stage, but the progress we are making is encouraging. At electronica in Munich, I hope some or most of you are there, Elmos and our customer AgiBot, a leading Chinese robotics company, will demonstrate for the first time how proven automotive technologies create new possibilities in humanoid robots and how semiconductor functions can work together across different robotic applications. We bring our proven automotive chips into robotics and open up a new growth market. A single humanoid robot could integrate more than 120 Elmos ICs across its architecture for motion, sensing, power, and connectivity. We expect the average Elmos IC content per humanoid robot to be comparable to our average IC content per vehicle.
Recent studies forecast an enormous long-term market potential for humanoid robots. As production scales to mass market volumes in the future, we will be ready to capture this new opportunity. Let me now continue with the reality today and present the financial highlights of the third quarter and nine months of 2026. Third quarter sales increased by 18.4% year-on-year to EUR 166.7 million. For the first nine months, sales grew by 16.4% to EUR 481.2 million. The growth reflects continued high demand for innovative Elmos ICs and new product launches in Japan and Europe. The stronger Q3 this year-on-year growth also reflected the lower prior year base, when around EUR 10 million in sales was shifted to Q4 due to the SAP HANA transition project you know about from last year.
Gross margin was 46.7% in the third quarter and 45.7% for the first nine months, compared with 43.6% and 42.7% respectively in the prior year periods. This improvement is the result of a strong development in operating efficiency, cost optimization, and scale effects. R&D expenses were EUR 19.4 million in the third quarter and EUR 59.3 million in the first nine months. We continue to invest in innovation and in the product opportunities that underpin our long-term growth. The R&D ratio of about 12% of sales is in line with our expectation and gives us a solid balance between resources for growth and a high profitability. G&A expenses in Q3 only came to EUR 2.5 million due to a one-time gain in G&A of around EUR 8.5 million resulting from the fair value revaluation of the share-based compensation.
As the share price at the end of Q3 was lower than at the end of Q2, the provision for the share-based compensation had to be adjusted accordingly. Going forward, these non-cash accounting effects will move up or down based on our share price at each quarter end. Since they are purely valuation-driven and unrelated to the underlying operating performance of the business, they are, as you all know, excluded from our financial guidance and shown in the operational performance of our company. Operating EBIT reached EUR 41 million in the third quarter, up 29.2% year-on-year. The operating EBIT margin improved to 24.6% from 22.5% in the previous year. For the first nine months, operating EBIT increased by 33.6% to EUR 116.8 million, and the operating margin rose to 24.3%, compared with 21.1% in the prior year period.
This is a strong result and reflects the operating leverage and execution capability of our business. By the way, unadjusted reported EBIT was EUR 49.5 million, so substantially above the operating EBIT. The reported EBIT includes IFRS valuation effects related to share-based compensation mentioned above. So we had a gain in the share-based valuation from an accounting perspective due to the lower share price. By the way, the total EBIT impact of these effects to date is only EUR 3.6 million or 0.7 percentage points. Nevertheless, they are excluded from operating EBIT, which is good to make the operating performance transparent. Investment activities remain disciplined at EUR 5.2 million in the third quarter, or 3.1% of sales. For the first nine months, CapEx was EUR 14.1 million, or 2.9% of sales, compared with EUR 24 million and 5.8% a year ago.
Our efficient manufacturing model allows us to support growth with a modest capital base. For the full year 2026, we expect CapEx to be around 5% of sales, meaning that Q4 CapEx will be higher compared to the previous quarter. This is related to an acquisition of an office building at the Dortmund site where we buy back out of a very old sale and leaseback arrangement. Cash generation continued at a high level. Operating adjusted free cash flow was EUR 32.3 million in the third quarter, equivalent to a margin of 19.4% of sales. For the first nine months, operating adjusted free cash flow rose by 60.9% to EUR 87.8 million, or 18.2% of sales, compared with EUR 54.6 million, or 13.2% in the prior year period. This progress reinforces the quality of our earnings and the successful transformation into a cash-generative business.
Ladies and gentlemen, let me finish my presentation with the market outlook and our guidance for the fiscal year 2026. S&P has upgraded its September forecast for the global production volume vs July by more than 300,000 units to now 91.4 million new vehicles. 2026 volumes are expected to be lower vs 2025 by 1.8%, with lower volumes in China and North America, and higher volumes in Europe and the major Asian markets outside of China. However, as we have highlighted consistently, growth in the automotive semiconductor market is not only driven by the underlying vehicle production. Instead, it is fueled by powerful secular trends that continue to drive semiconductor content per vehicle. The structural growth drivers in automotive electronics continue to support our market opportunity. Our broad range of applications and the programs secured over recent years position us to grow through different market conditions.
We also see attractive longer-term potential in new technologies that can benefit from our proven analog mixed-signal capabilities. Building on our strong performance in the first nine months, we are confirming our guidance for the full year 2026. We expect sales growth of 12% ± 2 percentage points, and an operating EBIT margin of 23%-26% of sales. CapEx for intangible assets and property, plant, and equipment, less capitalized development expenses, remain at a low level despite the growth, and are expected to amount to around 5% of sales. In addition, cash performance is expected to remain strong, with an operating adjusted free cash flow of 19% ± 2 percentage points of sales. Our guidance is, as it was before, based on an exchange rate of EUR 1.15 to the dollar.
Ladies and gentlemen, our first nine months show that Elmos is delivering profitable growth and strong cash generation. Our business is growing and operating profitably, as well as cash generation is substantially higher than a year ago. We remain confident in our ability to sustain this performance. The combination of innovative products, operational discipline, and a capital-efficient business model support both attractive growth and high cash conversion. The opportunities ahead are compelling. Automotive megatrends continue to increase the role of intelligent semiconductor solutions, while adjacent technologies offer additional avenues for growth. We enter the final quarter with confidence and remain focused on delivering continuous value for our customers and shareholders. Thank you for your continued trust and support. I would like to open the floor for your questions.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star, nine, and pound key on your telephone keypad. If you would like to cancel your question, press star, three, and pound key. You can also use the dial-in function in the webcast if you would like to ask a question by phone. Let's see if there are first questions coming in. There we are. First question comes from Veysel Taze from Metzler.
Morning. Thank you for taking my questions. First question regarding the full-year outlook. Can you give a little bit of color around the upcoming fourth quarter? I mean, your midpoint suggests somewhere revenues above EUR 170 million. Nevertheless, we and the market are rather at the top end of the guidance range, which would imply roughly EUR 180 million revenues for 4Q . Then related to this also, the operating profitability. I mean, 4Q , nine months is 23.5% margin. I was wondering why you did not really adjust the bottom end of your guidance range for the profitability. What is your thought process for 4 Q for not sticking to your expectations despite the solid nine months results, right? Then I have a follow-up.
Wonderful. Let's tackle the first two questions. We look and go confident to the next quarter. I think this looks very much like a record quarter. To what degree exactly? I mean, the numbers you were mentioning, they are very close to each other. We are talking about a day or two of sales that happen between Christmas and New Year's. We cannot really say where we land, but we go very confident to Q4. On the EBIT, year- to- date, I believe after nine months, we stand with operating EBIT at 24.3%. Yes, we could have adjusted and said, curbed the guidance from the lower end. Maybe that would have made things even more narrow and clearer, but I believe generally EBIT expectations are pretty much in line with how we also see the year developing.
We are also pretty confident about EBIT for the rest of the year.
Great. My follow-up would be, you mentioned the design wins for the quarter. Can you just repeat the numbers and give a little bit color around what areas were the wins? Are there any wins outside of the auto business? I mean, the impression is a little bit humanoid and robotics market is a little bit being pulled forward on the timeline in terms of adoption. A little bit color around the design wins would be great?
Yeah. We are looking at lifetime revenue, EUR 665 million. If I look over the distribution by segment, all segments had their fair share. I mean, you know we have got some bigger segments like Ranging. They have, of course, also a little bigger share. But the segment distribution is pretty balanced. If you look at non-automotive, yes, of course, there are some little non-automotive design wins. We are not completely automotive. On the other hand, we do not foresee any really substantial revenue in 2027 from humanoids, for instance. Yes, of course, there will be revenue. This will be little series revenue. But to really underpin our growth, I mean, 1% of growth is kind of EUR 7 million, 2%, 3%, 4% of growth. I mean, you can do the math. There will not be several percentage points growth just added by the humanoids yet.
We very much believe in their future, but we do not believe in volumes that would really drive our growth in 2027.
Got it. If I may squeeze in a really very quick one. One of your main competitors is talking about rather a bit more aggressive pricing strategy, so that they want to defend their market share or reduce prices a little bit more aggressively. I was wondering if that was also part of your thought process for Q4 and maybe also looking into 2027. I know you have been talking historically a lot about price increases, but was there any change from this perspective?
We see in one very particular segment where customers can change relatively easily, that we see one, well, fabless or not fabless competitor, I believe this is open to interpretation, trying to fill the fabs that are within the conglomerate. Generally, we do not follow strategies that are unsustainable and in the end, unhealthy. So, let's see where this whole thing lands. Of course, negotiations for the next year are still underway. We have got very nice growth areas, so we do not really depend on kind of making prices that are not profitable just for the sake of revenue, which also hurts you when you have to invest for something that does not generate a profit. Then you have CapEx and no profit to kind of justify the CapEx. So we rather go for profitable growth than for, how shall I put it, experiments in pricing strategy.
Got it. Thank you.
The next question comes from Abed Jarad from mwb research.
Hi. Good morning. Can you hear me?
Yes, we can. Hi, Abed.
Hi. Just two questions. The first one on gross margin. It came really pretty strong this quarter. I was questioning, to what extent is it sustainable? Is it too aggressive to assume this in 2027 as a base case, like run rate? That is the question.
You know, I mean, generally, we are very positive on 2027. We are in the middle of the budgeting process, so I cannot even tell you. I mean, I do not know a lot more than you on how all these things develop. I would not think that there should be big hits to the gross margin next year. You know that we do the gold to copper transition, which is a good thing. We continue to improve efficiencies and yields and everything. We do not have a negative inclination towards the gross margin in our feelings, and we have not done the math. Our feelings are very much intact, so your assumption does not sound unjustified.
Okay. Thank you. Maybe a follow-up question on working capital. You have been trying to reduce it towards your midterm goal of 25%. We are still really far behind. I mean, I think for the nine months, it is above 43%, 44% of sales. Why is it slower than you have expected, or how should I think about this in next year? Why is it not coming down as you have promised in the beginning of the year?
It is a very good question, actually, because we had in mind reducing it a little bit more, but now that we go into an allocation situation, we kind of shy away from it. If we can, we buy some extra wafers. If we can, we shift things through the value chain a little quicker just to make use of the capacities that we have. So we, in a way, deprioritized the working capital goal a little bit. Also, I mean, when you are at a 19% kind of run rate in terms of cash, we think we can kind of afford the extra safety and the extra service to our customers in keeping this working capital level. You are right, this is a change over the year. With the developing allocation, we got more cautious in reductions and in getting tighter with the working capital.
Okay, makes sense. Do you think it will also remain elevated in 2027, or is it depending on the allocation only, or?
Well, it's a little bit of guesswork, right? But for the first quarter or two, I would guess today, yes. For the rest of the year, I don't know, because we would have to see how the market conditions develop. This is a key input in how we make up our minds around working capital.
Okay. Maybe last question regarding pricing. Can you give us some color on it? I know that you are planning to increase one more time in 2027. Maybe more information on this?
Yeah. Well, we're in the middle of the 2027 negotiations, so I wouldn't comment too much. Generally, in these situations where we face higher prices in our value chain and we face an allocation tightness, we do pass on the cost to our customers. This is the very general guide. Then you have to find solutions with the individual customers. But I believe for the purpose of looking at the whole P&L, this is kind of the leading notion. We need to pass on when we get hit from these AI-induced price increases.
Okay. Thank you so much.
Thank you for your question.
Very much. Once again, ladies and gentlemen, if you would like to ask a question, please press star, nine, and pound key on your telephone, or you can use the dial-in function in the webcast if you would like to ask a question by phone. We have the next question coming from Johannes Ries from Apus Capital.
Not so much left. Only for, maybe I missed this. How good was the design wins? You mentioned, maybe I didn't cut it. Is it another very strong year like you expected in the half-year report?
You're not very loud. What I heard is, how good are the design wins?
Yeah. Can you hear me better now?
Yes.
Okay. Maybe I missed, I think you mentioned it during the presentation, but I didn't cut it right. How strong have been the design wins so far this year, and what are your expectations compared to the really strong years you had before?
I think we will end around the level of 2025, which would make it a very strong year. I can tell, as you know, in 2022, we had this extraordinary design win year, right? This is not to be surpassed for some years now. The max we can get out with any reasonable development is the second-best year. Will it be the second-best year? The race is on. I can't tell you. I believe this is good news that I can tell you today.
That sounds very good. Maybe some words on China. How strong is your Chinese business? I heard just this morning from Infineon that their Chinese automotive business has grown twice as fast as the rest of the world. Is it the same for you, or is it a little bit different?
If we look at the trend over the last five years or so, this may well be the case. If we look at this year, China business is very much driven by exporting from China, less local demand. I believe it is much closer to the group.
Remember, we had a very, very strong year last year, 2025, with exceptional growth in China, and we are still continuing to grow on that high level, but of course, not with the exceptional growth rates we had in 2025. Exactly, it is on group level, basically. Double-digit growth, you can say.
Oh, great. Thanks. Finally, again on the cybersecurity opportunity. I think it is also not a major driver for 2027, but how big could this business be? You have, if I remember right, the smallest, tiniest maybe hardware security solution. Where are the areas where it will be used, and what is the feedback of the customers? Maybe what you expect from electronica and how important it could be in the years after 2027?
It is very hard to tell because this is a product where we have no predecessor. All of you, come to electronica and take a look. We have an excellent demonstration. I mean, it is random numbers. Random numbers, as we all know, are of course very valuable in cybersecurity. Since these are random numbers that are based on quantum effects, they are real random. I mean, they are physically random. This is a, I think, very good achievement, and you can integrate it in various parts and in various CMOS-based processes. But it is an early-stage thing. I think in 2027, major revenue would be quick, would be quicker than we expect, but we are showing it to a lot and lot of customers at electronica. Come take a look. I mean, random numbers, if you look at them, after some time it gets boring.
You need to understand the significance of a real random number, and then it's not so boring. Yeah, so it's a great device.
I think it's also, when you look at our awards, we received the second award on Friday, the European Innovator of the Year 2026 for our QRNG. We already received the German Innovation Award in April this year. So from a highly specialized community, this product and this innovation is really, really well-known. And yeah, based on all these cybersecurity threats and trends, specifically in the last couple of weeks, that could be a promising field in the future. But again, let's wait and see.
Where do you expect the end use? Maybe are there sectors, maybe the products this solution will most likely be used?
Oh, this is pretty horizontal. I mean, we have customers that are interested from actually various industries. This is not only automotive to make the cybersecurity architecture of the car better. This is also other, if you want, adjacent industries like industrials or defense. Generally, it's a small, easy-to-integrate device. You could even integrate the IP into bigger CMOS devices and just have it on the same chip. So, there's interesting things you can do with it.
Great. And finally, could maybe other products in this direction follow on, or is it this one solution in cybersecurity?
Well, let's make the one successful first. I have to be very careful now. You know, Mr. Ries, at this time of the year, we budget. What comes to me is the R&D budget, which is always full of interesting things. But I can't promise all of them because this just blows up our P&L. So particularly in this time of the year, I have to say yes sometimes, but I sometimes also have to say no. So, let's make the first one successful, and then I'm very happy to talk about new budgets.
That's clear. But you understand, we as analysts, we always, if you get us a small finger, we want the whole hand.
Of course.
Thanks a lot.
You get the robotic arm.
Okay, thanks a lot. I will come up for it.
Thank you so much. Lukas Spang is the next questioner from Tigris Capital. The stage is yours.
Yes. Hi, good morning to both of you. I would like to follow on the question of Mr. Ries in terms of design wins. in the half-year call, you mentioned that you have already won design wins in the value of, in the amount of EUR 400 million lifetime value, which was by this time 60% of what was the target for the year. Maybe some details or some insights where you stand today in terms of the design wins related to your targets for the year?
Currently, we're at 95% of the full year. We've got, yeah, well, either 1.5 or two months to go. Say 1.5 . There are some Christmas days where only the non-Europeans, the Asians bring in design wins. We are pretty happy.
Dr. Schneider mentioned in his presentation that after the end of October, we achieved EUR 665 million of lifetime revenue, and that equates to around 95% of our annual target. We are, I think, yeah, well underway to achieve that target or overachieve it a little bit. Very solid development.
Okay, thanks. In terms of pricing, how relevant will this be in Q4 already?
Yeah, I think it is relevant, but we shouldn't overestimate it. I mean, when we look at the nature of the allocation we are in, it is an allocation in terms of foundry 8-in capacity, but it's by far not as severe as it was in 2021 to 2023. If you look back at that time where we had double-digit price increases across the board, multiple years in a row, this was a very structural, very deep allocation situation. This one is different. It's not so difficult. I mean, this time, I believe everyone that orders according to lead time, by and large, will get their products. There may be some crazy exemptions, but the general market, we will not see factories breaking down and millions of cars not being built. This, at least from today's perspective, is an unlikely scenario.
We've seen exactly that in the years 2021 to 2023. We are having both our allocation years, but the severeness of the allocation is drastically different, so the price impact will also be very different.
Mm-hmm. But will it be already more pronounced in Q4, or will this be more a topic for 2027?
We will see it in the second half. We also seen a little bit of pricing in Q3. We will see about that. This is part of our guidance. We are right now in all the price negotiations for 2027, and I believe most of them will be finished until the year end. Some will, as always, drag into January and maybe even parts of February, if the past is any guide. So I can't really tell you how this lands for the next year, but of course, there are discussions to pass on the additional costs that we have.
Okay. But it's not yet that pronounced that you would say you are comfortable to tell the market that you are confident to achieve the upper end of the revenue guidance?
Yeah, we are positive for Q4, but we wouldn't say that we're necessarily at the upper end.
Mm-hmm. Okay. Thanks.
I mean, being in the lower half seems not excessively likely. That is also true.
Yeah. Okay. Thanks.
Thank you for your question, Mr. Spang.
Yes, thank you. At the moment, there are no further questions in the queue, but we are going to give you another moment to submit your question. Once again, star, nine, and pound key would be the keyboard combination, or you use the dial-in function. That seems not to be the case. We are going to give you another five seconds. Don't want to rush anything. All right. No further questions, and I am handing back to our host, Dr. Arne Schneider, for some closing remarks.
Ladies and gentlemen, this concludes our Q3 conference call. Thank you for your participation and your questions. Meet us at electronica. I hope to meet many of you also at the upcoming investor conferences in Barcelona, Frankfurt, and London. Thank you very much for your support and your interest in Elmos. For now, have a good day. Goodbye from Leverkusen. Take care and stay confident.