Ladies and gentlemen, welcome to the preliminary figures Q3 2026 conference call. I am Sergun, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Dr. Peter Podesser, CEO. Please go ahead.
Well, thank you very much, Sergun, for the kind introduction. Good afternoon to all of you, ladies and gentlemen, joining us on, I would say, short notice, but I think with a good or positive set of reasons. Based on what you could read already, we as a management decided yesterday night to put out preliminary figures and also an additional raise in our earnings guidance. Together with Daniel, we would like to simply give you the background of it, some of the key data points. Please also accept the fact that we will not have, let us say, the full data set that we will publish then on the 11th of November for you ready today.
Going back to the main topic and the main reasons, we are looking at preliminary figures that are simply reflecting the profitable growth momentum we are showing in the business here over the last three months here in the reporting period. We are looking at EUR 132.8 million revenue compared to EUR 102.7 million last year comparable nine-month period, which is a significant 30%+ increase. We are also looking at an over-proportional development on the profitability, bringing both key performance indicators that we have here as a company for years, adjusted EBITDA and adjusted EBIT, to close to the previous upper end of the guidance, and in one case also beyond it.
If we look at the key reasons, it is obvious that the significant expansion and the acceleration of the defense business, in particular also naturally the program that we just accomplished in Ukraine, drive a much more favorable product mix than we had initially anticipated. At the same time, we also see that some of the underlying assumptions also on the cost side did not materialize here, also in conjunction with this program executed in the last two quarters. At the same time, and I think that is at least as important as this, also in the civilian, especially in the power business here in Europe, we are seeing a good improvement here on margins level.
At the end, this led us to a decision yesterday to leave the sales guidance here within the corridor that we have out there in the market that we know between EUR 166 million and EUR 175 million. Still, it is a broad span. Some of it is still related also to final clarifications on the supply chain, and then also last-minute upside. I think we are looking at some projects that could materialize also really last couple of weeks of this year, and that is why we also leave this option open. If we then look at the range that we have chosen and that we have adapted, I think on the EBITDA side, lifting it up to EUR 36 million, from EUR 30 million, to EUR 36 million to EUR 38 million, and on the EBIT side, the corridor here, EUR 25.5 million to EUR 27.5 million.
All this, I think, shows a positive and strong momentum in the business, a strong mix development, and also going forward, I think we are seeing the momentum continued. If I now look into, I would say, the main key reasons that are driving this, I would like to start with a little more background on Ukraine. The feedback that we get from users, and we were on site together with the team last week and last weekend again in Kyiv, the format of combat has changed. We see the demand for electrical energy in the field driven by the fact that most of the systems are unmanned. Almost all of them are electrical, and therefore electrical power needs are surging as we speak.
The combination of what our fuel cells guarantee to have a dependable, reliable power source that is highly agile, mobile in a way, but at the same time then virtually undetectable, helps to ensure longer mission durations. Then also, you have reduced logistics effort and significantly enhanced safety for users. Looking at where we are right now, we have started the distribution of systems. They are in use. We are getting feedback as we speak. What we do right now on site in Ukraine is building up two redundant service and training sites, geographically split in different parts of the country. Based on this, I think we are also preparing for the continuation of the business. The expectation, well, is, I think, pretty clear. We are expecting also follow-on contracts with our existing customer.
This is one part of the armed forces, but we also had continuous conversation with the other or different other parts of the armed forces. This is the work ahead of us. Supporting the customer and deploying systems right now is what is the daily work. Ukraine is definitely a boost to this year, and we expect this to become a contributor to the business also going further into 2027. If we look at one other element, especially in the power side of the business, maybe Daniel, you want to explain here and elaborate on the gross margin improvement here for the power business in Europe?
Certainly, I can do that. As you are all aware that the Clean Power Management has two major business lines. One of them is the entire power management, which is out of Europe, so those customers we mentioned before, ASML and some others, as well, and then another portion of the business at the Canadian business in the oil and gas sector. When we look at the gross margin of that European business, we have seen that the gross margin is better than we initially expected. In spite of the fact that the revenues declined, the gross margin was slightly expanded there, which is a function of the product mix that we had in there. It is a larger portion of semiconductor revenue that we had in there. This tends to be really high-margin business also.
Also, we had a lesser portion, not significant, but lesser portion of defense business in that power management business, which then really led to a stable margin in that business division, in spite of the declining revenue that we had there. Overall, again, but we will get to those numbers once we publish them, the margin in power management as a segment has not expanded, but it was better than expected with that very specific business division of the European power management business.
Maybe at this point, do you want to also comment on some of the cost impacts, especially associated with the Ukraine business and some of the shifts from the ERP side?
Yes. Peter mentioned it also, where we were better than we initially expected, and I mentioned that in the previous quarterly calls. The whole processing logistic cost associated with shipping and delivering the Ukraine revenues into quarters were lower than we anticipated. Remember, these are huge orders for our size of the company. Really big shipments always towards the end of the quarter. I would not say it was an uncharted land, but with the shipments going various ways, we were able to keep logistic costs lower than we initially anticipated and planned. We were also slightly lower on some consulting costs in connection with introducing ERP in the third quarter. These costs will shift into the fourth quarter, so we will see a larger portion of that cost going into the fourth quarter right now. And then that really has an impact also on the margin.
I know you all did the math and looking what's going to happen on the lower end with the EBITDA in the fourth quarter, but that's one of the reasons why on the lower end, we also expect a lower EBIT and EBITDA margin. In addition, and I think Peter will also elaborate on it, we're looking at a much higher portion of business development cost in the fourth quarter, in connection again with our defense business. There's a few other smaller cost factors in the fourth quarter, which most likely will have an impact on the EBIT and EBITDA on the lower end. Again, it's not one single thing. It's a mix of a few factors, and always towards year-end in the fourth quarter, margin tends to be a little bit lower in context with provisions and the revenue development.
This, I think, also rounds up the topic that I would like to also address here in a way. I think we are all seeing the positive effect and also the boosting effect we're having from the market entry into Ukraine. There's definitely simply a technology and product fit with the user needs. We are the fast mover and the early mover in this kind of business, and we do not see a comparable competitive product right out there. So for the time being, I think we are able to execute on this head start. Besides Ukraine, you might have seen the activities we reported about also recently. So, it's not an effort that is just limited to our activities in Ukraine in the defense part.
The other way around, we are making use of the model role that Ukraine has in this sector right now. We see a lot of international military observers, forces being present there to simply understand and learn how this modern warfare is functioning. If we look into our own activities here, regionally, just a couple of days ago, we were able to announce our collaboration here in Abu Dhabi with EDGE Group, the leading technology and defense group there in the country. At the end, we are seeing a similar demand, similar threats, and similar needs from users.
What we are seeing within the last couple of months is a significant acceleration of this program, and we have clear next steps in place where until the IDEX show in Abu Dhabi end of January next year, we want to have the first proof- of- concept successes here in the civilian and the defense business executed. This is, again, unmanned solutions. This is portable solutions and vehicle-mounted solutions. On the civilian side, it's CCTV surveillance along highways, but it's also backup power for local data centers here with our hydrogen products. So, a program that we firmly believe we will see already a tangible contribution there in 2027. We were also in the U.S. just recently with our entire defense team at the biggest defense show at the AUSA in Washington.
We are working on what is called a CRADA, a Cooperative Research and Development Agreement here with parts of the armed forces for a next generation of portable power source, so a next-generation fuel cell. At the end, a program we did many years back with the U.S. Army already with the development command, DEVCOM, and PEO Soldier. They have adopted and taken a decision to take fuel cells and hybrid energy technology again into their technology portfolio. This was ruled out some 10 years back. With all this development that I described, also out of the Ukraine, that a lot of systems are now electrically powered, it makes sense to think about, let's say, replacing generators, and this is apparently also the decision we are hearing here.
Starting this development program is something that we are planning for, that we are preparing the resources for, and that we are in active engagement here with the U.S. Army to, let's say, get this in place also for 2027. Yesterday, we came back from Singapore here with our partner, Oneberry. We have established a good business in the civilian security market. Some of you might remember this AI-based unmanned security for especially also border security. Also in Singapore, we see now concrete requirements being phrased for new electrical energy supply in the field for defense forces. Also there, we expect a development to start.
Last but not least, on the OEM side here in Europe, we see some delays due to, let's say, heavy loading here in some of the factories, but we also see first OEM programs being now prepared, and we're having respective meetings with the OEMs, but also with the procurement agency here in the next couple of weeks to solidify the visibility for 2027. We are happy about the business in Ukraine. We are expecting to continue, but it's also for us a multiplier here for other programs, and we really intend to make use of this opportunity. If we look into the civilian part of the business, the civilian surveillance business here in Europe is continuing to accelerate. Some of you might have seen that the market leader, one of our long-term customers, BauWatch, was acquired by two large and leading PE firms.
The market dynamics are positive due to the fact that a lot of critical infrastructure needs protection and surveillance. We are seeing new players coming in, and I think looking at our customer list, we have more than two dozen CCTV customers here in Europe on our repeat customer list. In the U.S., we are not that far, but we have started a program here with our new sales team in place. Just a couple of numbers. We did, I'd say, a massive cold calling campaign addressing 1,400 addresses. Out of this, we could qualify more than 40 qualified leads within this sector, and also there, our customer list has expanded significantly, and we have more than 20 leading CCTV customers already there using EFOYs. The volumes are not there yet.
We are, let's say, not at the volume levels that we originally planned to be, but I think the systematic that we are applying gives us all the reasons to be confident and optimistic also for scaling in this segment, again, also starting in 2027. Summarizing all of this, I think you see us in, let's say, a very dynamic phase. Well, tripling profitability here, talking about EBITDA adjusted and even having, let's say, 5x more EBIT adjusted here than in the comparable period the year before. Naturally, it's a solid foundation also to further be able to invest. As we said, regionally, we are, I think, doing some, or we are in the execution stage. On the capacity side, we are well-prepared.
There will be another new production line coming on stream in Swindon next year, but more or less, we have enough capacity for the next two, three growth steps in place. So, overall, a pretty sound picture. Looking at the closeout of the year, if we look at the product mix of Q4, this will be comparable to Q1, naturally missing some of those big chunks of defense business to Ukraine. And, yeah, we should see also on the cost side, like Daniel said, we had some shifts here, especially also in our ERP project, but we are also expanding the activities significantly in Ukraine. That will also be visible in Q4 with this. This gives you, I think, the basis also for our calculation here for the outlook in the guidance.
As said before, the more detailed numbers we still will publish here on the 11th of November. Happy to naturally by then comment on them too. But for today, I think we would like to hand over to you and open up the floor for questions. Thank you very much.
Ladies and gentlemen, we'll now begin the question and answer session. Anyone who wishes to ask a question may press star and then one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone with a question may press star and one at this time. We have the first question coming from Usama Tariq from ODDO BHF. Please go ahead.
Hi, good morning, team. Thank you so very much for the opportunity. Congratulations on the great set of results. I have just a set of questions to start off with. Firstly, on 2027. This year, we've had a very big order from Ukraine, and you guys have very fast delivered as previously communicated in Q3. So Q4 will be relatively lighter without it. For 2027, do you expect some return from either another force from Ukraine or any associated army for a project of this size? My second question would be with regards to India. Could you just give a slight update? You have been traveling around. What is going on there, and if you see some acceleration on that front? Those would be my two questions. Thank you.
Usama, thank you very much. Peter here. On the Ukraine, yes, the base assumption is that we will see a continuation of the business as we see the needs continuing. Also, if you look at the geopolitical situation and all what we hear, also hear from senior political representatives, there's so far no, unfortunately from a human perspective, no quick path and no direct and shortcut here to a ceasefire visible for the time being. Based on this assessment, and also the assessment that there will be also needs after ending, I'd say, the conflict, we are planning for the service and regeneration part within this part of the armed forces, the National Guards, for 2027, which is not the same volume than we have it here in 2026, but we are, I'd say, looking at a EUR 23 million- EUR 24 million planning that we are having there.
Also, in the discussions that I conducted there, here last week on site, I think we have a good understanding what the needs are. I think the fast track, looking at it, would be everything clear within this fiscal year, also would naturally be covered then by, let's say, the household years, especially here from a German perspective in terms of financing here, this support to the Ukraine. But there are also EU funds available. They are released. Also, in addition, we had discussions, especially with the Ukrainian MOD and other parts of the armed forces, including last week, to also tap the local defense budget, where we are working on the qualification to get on the so-called KOROVAI list, which is the classifying list here for the defense procurement agency in Ukraine. So, we are going through three funding opportunities here.
Germany, as we have the program in place, which we are extremely happy about. EU, one, let's say, bigger program in place that would be also executed then on the national level, and also the Ukrainian budget there. All those additional projects for the time being, we do not count into our planning for 2027. But all the initiatives here, be it the Middle East, be it the U.S., be it, let's say, what we do here on OEM level in Europe, is naturally part of the growth plan for next year. So, the defense plan is still taking Ukraine as a centerpiece, but it's by no means everything. India, latest status, we did an update with our partners just recently.
I think we are looking at naturally the ongoing, I'd say, service and support contracts. We also expect, let's say, a ballpark figure of EUR 5 million-EUR 6 million orders that are due for decision-making within their fiscal year, which goes until the 31st of March . If we look into our, let's say, planned rebound and planned return to growth in India, that's pretty much concurring with what we have in our midterm plan there. We would see a significant rise in business, and we really expect, let's say, those orders that are now in the pipeline where we have visibility to either come in still before Christmas, but then at least before the fiscal year end in India. Pretty confident on this end, even after the experience of the last 2 years.
Very grateful for the elaborative explanation. If I could just quickly squeeze in two more questions. One would be, you indicated that you are now present on ground in Ukraine. You're, let's say, I would say, building up two training sites. Just a very basic, stupid question would be, how safe do you think it is? Is your workforce also going to be there, or is it properly just manned by people from Ukraine? My second question would be on cash. So each one was around EUR 44 million. I would expect that this order that you have delivered would generate significant cash. Do you look at some M&A opportunity considering what has happened? Anything that you are looking at in particular these days? Thank you.
Well, safety is the first concern we're having before we take a decision also to go on site. We only have voluntary visit in Ukraine, including myself. We try to get as much information as possible here from official German and Ukrainian sources before we travel and we go over. Also, myself being a father of four and already a 2x grandfather, I have no interest for, let's say, useless exposure, but there is a residual risk. Everybody knows this, but I think from own experience, also all the support we get from, let's say, German and Ukrainian side when we travel there is a very, I'd say, diligent preparation. I've not felt unsafe during, let's say, this last trip last week. But it's about voluntary presence in Ukraine. We need technical experts to do this also from here.
We also have some of the Ukrainian guys over here for training already. But naturally, it involves presence there with all cautiousness. Whenever there is an over-proportional risk to our assessment or based on, let's say, the input here from the safety briefings of the embassy, we would postpone it.
Understood.
Well, M&A, as before, we are qualifying here market access opportunities and market entry opportunities. But it is nothing yet now with all the other programs now taking really a big part of the attention. Do not expect us to do anything in addition to the Siqens acquisition that we just did in July. We are integrating this right now. We are moving the whole Siqens team now as of this week here to SFC, so we will integrate everybody here on site in Munich. That is in full execution. But that is on the agenda definitely for 2027, but do not expect any result in 2026.
Very grateful. Thank you so very much. Thank you.
Thank you.
The next question comes from Michael Kuhn from Deutsche Bank. Please go ahead.
Good morning. Thanks for taking my questions. I will start one. That was one on the Clean Power Management business. You mentioned the increase of the high margin share of the semi business, where I think ASML is becoming more important. Could you give us an indication how big that business currently is and how big it could grow next year and maybe over the next couple of years?
Hello, Michael. Peter again. It is still a development program. We are doing paid development here. Just in size, we have 11 engineers exclusively here working for this customer. We are looking at, let us say, EUR 3 million-EUR 3.5 million total volume, similar still next year. The plan that is not our plan, but is the customer's plan to get this into real unit shipments apart from the demonstrators is then the scaling step in 2028 with an outlook to get this to a EUR 5 million-EUR 10 million annual recurring revenue. This is the corridor that we are told right now. I think going further into or continuing to work with them here at that level, we should have a better visibility. Let us say each half year, we are coming nearer to the end of the development phase.
That is the corridor that we have been told.
Excellent. Thank you. Then one on CCTV consolidation and, let us say, your relative cost positioning. What would you say are the implications of consolidation in the sector on the one hand and the sector as a whole becoming more important on the other hand? Would, let us say, professionalization and private equity owners probably looking more at Total Cost of Ownership be or result in a bigger opportunity for you? That is the one thing.
Yeah.
The other thing is, obviously, in a couple of use cases, especially backup power, you still compete with diesel engines. Diesel prices have grown disproportionately. You see your relative cost positioning on TCO improving. Did that already result in, let's say, tangible changes in customer decisions?
To start with, I'd say the CCTV side, w e are seeing a lot of capital flowing into it. We saw the market leader here in Europe, and that's public information, BauWatch being acquired here by two large PEs. We also saw, I'd say, the number two player now being formed here by a combination of player number three and four in the market with Video Guard here, the German part of this merger being also the outside visible, I'd say, trademark or logo. There's, I think, a lot of momentum, and what it tells to us, and looking also at some of the prices and valuations that are there, those investors coming in usually also have growth expectations.
If we then look at market data we have today in Europe, I'd say, an installed base here that's about, let's say, with an 18% total penetration here in the market with our EFOYs. With the newly installed systems, we are seeing that we have more than one-third of the systems are equipped with EFOYs because of a structural growth driver. We see more power needs in the towers on the trailers, and therefore, we are expecting a better penetration rate. Why is this? Because we have now not the 22 W camera on this tower up there, but we have usually now for higher-end systems and for the higher-performing systems, you have then a camera that is AI-supported with AI features in there that needs 3-4x the power. We have more computing power in the tower.
In situ power is increasing, and this can barely be covered just by larger solar capacity. There, the EFOY is, let's say, a classical fit. Looking at the market data that we get from independent sources and then just doing the calculation where we are right now and what our current penetration rate is, which is the base for our planning, we are much more conservative than the market itself would, let's say, or a market-based model would be. I'm very happy to also go into this in more details where we meet next time. What we see there is a gap that is between 25% and 40% upside for us.
The other side, having now private equity owners coming in, we are cautious in the planning for next year because we will see there will be an impact looking at the working capital of our customers, looking at the high-priced parts of the BOM. We expect, I would say, a period of one, two quarters where this will be out for discussion. We will have to prove that it makes sense to have the EFOY in, and we are pretty confident we will also be able to convince the new owners of the BauWatch and the likes. Pretty exciting environment, and I think just the fact that we need more power in the tower and on the trailers in North America is really an argument for our product. Critical infrastructure, we see both.
Yeah, definitely the total cost of ownership, this is high diesel price helps us, but then still, if somebody is driven just by CapEx and doesn't care about noise or exhaust in terms of emission and CO2 emission, we also see people opting, let's say, back to the diesel, which has an impact naturally on especially also our hydrogen business that we had, let's say, adjusted already in our expectations. I think we did good in adjusting it. At the end, yeah, our base assumption is not we are replacing every generator, but where somebody wants something that is more silent and cleaner, and then finally still offering a good total cost of ownership, we have a good chance. But we will not win every single match here against diesel. We are not anticipating this.
Great . Thank you.
Thanks.
The next question comes from Karsten von Blumenthal from First Berlin Equity Research. Please go ahead.
Hi, Peter. Hi, Daniel. Thanks for taking my questions. My first question is regarding the defense revenue share in total revenue. What do you roughly expect this year, and do you think that will rise or fall next year?
For this year, you can look at it like 1/3, and if we look at the segment, it's about 40%. So, on group's level, about 1/3. Going into next year, as said, we intend and we think we have a realistic assessment also to keep this within this corridor of 1/3 with an upside if we are more successful in Ukraine than we anticipated. Again, it's not just Ukraine. We are talking about all those international and OEM programs that are in the pipeline. So it's really de-risking it, get the cluster risk limited.
All right. Thanks for that. You mentioned in the previous conference calls that you expect supply constraints in Q4. You haven't raised your sales guidance, so these constraints obviously will be there in Q4. Could you remind us where exactly these constraints are, and do you see them ease in Q1? You mentioned a new production line in Swindon in Q1, so will that also help reduce your supply constraints?
Well, I think that was one of the key elements. We did already ramp up in Ukraine. We are running with, let's say, fully automated two-shift production there right now. The additional line will be something to be set up next year, but earliest coming into operation then somewhere in the second half of the year. This, I think, fits to our planning right now. So we did really expand here our own, or increase our own capacity, especially in Swindon. Then we have also the first robot entity now in Bruntál up and running. Until the end of the year, we think we can free up some capacity here from our team, adding additional assembly capacity. So we are happy. We are in need of those people who were doing the stack assembly before as, let's say, fine mechanics to then do the systems assembly.
We are also adjusting there. We will not let anyone go, if not for other reasons. Then in the supply chain itself, we really have to work back here, especially for specific components like special pumps and parts of the electronics, just to make sure we, let's say, have access to the capacity we think we need also as of Q1, as we anticipate here also on the civilian part of the business growth. The same on the Clean Power Management side. We are seeing, let's say, those price fluctuations, especially for long-term contracts like with our largest electronic customers. We also have to go into long-term obligations and liabilities here with our suppliers, and we are doing this as we speak. On the membrane side, we have qualified additional suppliers here for components, and that helps us too at this point.
The revenue corridor that we have there for 2026 reflects on the upper end, I think, the maximum that is realistically doable. If there is massive need here from a single customer, we would definitely find a solution to maybe lift this up a little further. But that's then simply an additional effort that goes against then availability in Q1. But can be still a case that we need to look at in December.
All right. Perhaps you could elaborate on the new production line in Swindon. How much more capacity will this line bring to your Swindon operation?
Well, in total, we are, I'd say, again, then doubling the potential capacity. But this then is also a step-by-step process by, again, qualifying a second team there or split the current team and bring in people and train them. So that's definitely something that will take us two, three quarters to have everybody at the same level. But that's the plan, actually.
Perfect. Thank you very much for taking my questions.
Thank you.
There are no more questions at this time. I would now like to turn the conference back over to Dr. Peter Podesser for any closing remarks.
Well, again, thank you to all of you on short notice here. You see us in the last, whatever, eight weeks of the year with good dynamics. We are confident to deliver what we have raised today, obviously, but we will also be happy to lead you through some of the details here on the 11th of November . Until then, thank you very much for your trust and also for your time with us. Have a good day.
Ladies and gentlemen, the conference is now over. You may now disconnect your lines. Goodbye.