Stratec SE

And welcome, everyone, to our Q1 2026 Financial Resource Conference Call. With me, as usual, is Markus Wolfinger, CEO of StarTech, as well as our CFO, Tanja Bichal. As usual, following the presentation, we will have our question and answer session. Be aware that this content is being webcast live, and you can download the presentation either from the webcast or from our website. And last but not least, please allow me to draw your attention to our Dev Harbor Statement which we have on page two of that presentation. And this is now my pleasure to hand over to Markus.

Good morning, good afternoon, ladies and gentlemen. Welcome to our Q1 disclosure call. Let me briefly walk you through the quarter at a glance. First of all, we had a soft start into the year. I hope we managed to not surprise you with that. We have mentioned that in a variety or during a variety of occasions. However, definitely worth discussing what happened here. First of all, we think this compares to strong comps in 2025. On the other hand side, we had a solid instrument business on the other side. And that was like we actually saw that like for more than three months now that the start in the year is going to be soft as far as revenues with development activities as well as particularly our service parts and consumables business, which tends to become more and more back-end loaded over a year. A reason is that – and actually we are trying to work against that over the last four or five years, and we are trying to pull things into the early months of the year. However, the observation is that over the past three, four years, it could actually weigh worse. And even this year, it gets worse, quote, unquote, of worse than it used to be the case in 2025 and 2024. We see that there are end-of-year budgets that our customers are actually planning for end-of-year business. On the positive side, we can disclose that we managed to put more customers away from a forecasting system giving us concrete orders, which makes the second half of the year, particularly the fourth quarter, more plannable. which means that we have already initiated logistical and manufacturing measures in order to cover that. And again, the transparency is fairly high. This is no longer a phase where forecasts can be materially changed or actual orders taken out of the system. Again, worth mentioning that the thing we have already guided for is starting to show traction is that our instrumentation business is getting better and better. We had a strong growth in the first quarter. Unfortunately, the product mix is not working for us at this moment in time, but again, if we are looking into the actual allocation of resources of the relevant products for the remainder of the year, In terms of margin, not just the product mix, but even the participation of the relevant revenue groups within this forecast and within that guidance given is showing good traction and is positively supporting the margin development over the year. I mentioned that we had that negative scale effect, obviously. I think that's quite common. We see that there is a minimum threshold when the company can operate with scalability. We went south of that threshold in the first quarter. However, we see the momentum coming back. On the other side, and that's the swap-over effect of the accounts receivable from 2025, and particularly the very strong December, is that the cash flow dynamic improved significantly and, again, as we see this year fairly back and loaded, we are expecting similar effects this year. Let me briefly talk you through this phase where we see a lot of transition happening between development project and serial production. We have given detailed information actually first time over the past 10 years about when will those products hit the market and what is the mechanics to be applied in terms of how steep is the ramp-up going to be? Is there a kind of normalized ramp-up with SA menu development happening in parallel through our customers or if the products are concrete drop-in replacement? I think we have nicely shown that there is a lineup of products which are coming in the next couple of quarters. into serious manufacturing and the relevant role in terms of that particular two, the two most actual products are direct drop-in replacements with market extension, which will lead to that forecasted growth. We confirmed our financial guidance for 2026 this morning. And obviously in a time where the entire industry had a fairly soft start into the year, we obviously got even more cautious and have performed several reviews over the last weeks and actually days. Went again through a solid bottom-up planning, so about likelihood is it and how solid is our guidance. We went through that, and with the relevant diligence, we confirmed our guidance this year. However, it is going to be fairly back-end loaded. Q2 should slightly pick up, but Q4 will definitely be the strongest quarter in 2026. With that, for details, I would like to hand over to Tanja.

Thanks, Markus. Also, a warm welcome from my side. So, as Markus has mentioned, Overall, Q1 2026 was a quarter that was largely in line with our expectations. So we had already indicated that 2026 will be a significantly second half-year loaded year, and this is actually precisely the trend that we are seeing in our current business. The trends in revenue and profitability are also mirroring the markets that we are seeing in the last week. When we look at the financial figures at a glance, we first see the expected decline in revenue and earnings compared to last year's quarter one. The revenue stood at 53.4 million euros, means below prior year figures, and both the adjusted EBITDA and the adjusted EBIT also declined. The main drivers behind this development are the already mentioned timing shift to the second half of the year and the unfavorable product mix. Especially when we compare to the strong prior year quarter, the baseline is actually quite challenging. A very positive trend that we have actually already mentioned in our 2025 call two weeks ago is the cash development. So the pre-cash flow has improved significantly to 18.6 million euro due to the back-end load of December 2025. So let's have a closer look into the EBIT. So this slide shows you, again, the reconciliation to adjusted earnings. This, rather, is very important from a transparency perspective because, as you know, the IFRS figures reflect PPA amortization and other non-operating one-time items. So we see on the adjusted EBIT 700K positives, where PPA amortization and other non-operating effects are deducted. This effect is actually similarly visible in the consolidated net income that you see on the right side of this page. For our internal operational management and for our comparison across the periods, we therefore continue to focus on these adjusted metrics. In our view, these best reflect the current business situation and the comparison and the deviation analysis. So what is causing the drop in the adjusted EBIT? As mentioned, the main driver are the volume mix effects. Therefore, I would like to go to the next slide where we have a deeper look into the sales figures. In terms of revenue, we see the decline of 8.8% at a constant currency rate and 11.5% on a nominal base in the first quarter. And this trend is mainly driven by two factors. The first one is the decline in our high margin service parts and consumables business. Here we face again, as we saw it already in Q4 last year, this temporary working capital optimization measures at our customers. Nevertheless, we see a stabilization in the second half of the year, or we could call it more a coming back to the run rate of the first half year 2025 in that business segment area. The second main driver is a difficult, let's call it that way, year-over-year comparison in the development and service segment, which gives us a hit. Nevertheless, despite these two factors, we see an ongoing positive trend in the system. Here we continue to see the double-digit growth, which is particularly important to us because this confirms that the overall demand remains stable in our business and that we are well positioned in the market with our system. And at the end, with that trend, we are securing our future service and parts in consumables business. All in all, as I mentioned, the revenue trend is a reflection of the expected annual top-line development And this year, it's helping us also to deal with that second half year in a much better way. Coming now to the adjusted EBIT for the first quarter, as mentioned before, it stands at 700K, corresponding to a margin of 1.3%, and this for sure represents a significant decline compared to the prior year. Out of these lower revenues that I explained to you, especially with the high margin service parts and consumables, we face the lower capacity utilization, negative scaling effects, and the smaller share, especially on the service part consumables, but also on the development and services. As we have informed you in our annual call 2025, we are actively working on our cost base and structure. Therefore, let's move Again, the very positive aspect in here is the cash flow performance. So the operating cash flow stood at 21.5 million euros, resulting in a free cash flow of 18.6. This represents a significant improvement over the same quarter last year. The key driver is the reduction in our accounts receivable balance that has built up by the end of 2025 due to the very back-end loaded, especially December loaded business development. But you see it also reflected in the working capital on the right side of that chart. The trade receivables have declined. At the same time, the inventories and liabilities remain stable overall. We also see an improvement on the balance sheet side. So the net financial debt has decreased compared to the prior year and at the end of last year. And this is what you're seeing also in the leverage. leverage means the ratio of the net debt to the EBITDA LPM stands at 3.1, while at last year, at the end of 2025, we stood at 3.3%. What you also see on that chart is our capital expenditure ratio, which stands at 5.4% of revenue, so it's slightly below the planned range. but also in line with our expectations. And I would call it more an aligned phasing into the upcoming quarters. So all in all, the message here is very clear. Despite the weaker earnings quarter, our cash generating is developing positively. And with that, we are strengthening actually our financial flexibility. And with that positive note, I would like to hand over back to Markus.

We have given guidance, which is expected to be top line growth in a medium to high single digit percentage range on a constant currency basis. Again, mentioned a couple of times, very H2 heavy. On the EBIT side, we have guided to be at a level with 2025, which was at a 10% level. And for the investment intangible and intangible assets combined, we expect it to be between 6.5% and 8.5%. And please allow me to say we are certainly deeply looking into our earnings improvement program still ongoing with high-cost discipline, et cetera, and actually looking into the relevant sources of income looking into price increases, et cetera, all that's still ongoing and definitely on the investment side. We work on the if in doubt then error on the side of cautiousness principle which we did over the past couple of the past years and clearly showed how resilient we stayed during that time when like our peers took some hits. The message I would like to give you here is that we were trying to assess how robust that guidance is. And over the past couple of weeks, particularly over the last weekend, we managed to talk to a number of our customers and were trying to find out how robust they saw the orders given and the forecasts placed. In particular, this clearer order pattern versus forecast supports a more balanced H2 manufacturing, which means even if some revenues will be back-end loaded, I think from a manufacturing perspective, this may come out way better than it used to be the case in 2024 and 2025. Long-term, we have given guidance to grow 6% to 8% in the period between 2025 as a basis year to 2028. with several assumptions. The assumptions were that the new product ramps up phase into the main revenue driver. We see this already. We see our customer confirming their market launches. Then to the contrary of the past, the past in terms of the last three, four years, we are now only expecting a slight recovery of molecular systems. for the demand post-pandemic disruptions. And if you are following the announcements of our customers, you probably saw that actually some customers are already showing nice directions here within the existence placed in the market. And then certainly the – doesn't have to be unexpected – is the initial revenue contribution from early-stage products, not only development revenues but actually instrument sales for pre-series and pilots which are typically coming at a higher price point. Then from 2028, particularly when those products which will be launched in the next quarter are becoming more mature and we are going through that learning curve in manufacturing where volumes are showing nice scalability effects, we are further margin expansion through 2030 based on the growing install rate that Tanja mentioned before and as a derivative of that, the dynamic growth getting back to like not just pricing contribution but even volume contribution for service parts and consumables. for the same period between by 2028 to get to an at least 13% margin and by 2030 to get back to the pre-COVID level of 15%. Allow me to remind you that during COVID, certainly with the product mix, which was very favorable for us, that we got to a 19-20. percent EBIT margin after that very much driven by negative scaling effects coming in parallel to a higher input cost and a lacking ability to increase or to put a price increase on the input side forward to our customers. That led to the margin pressure. We are maneuvering out of that our contractual structure that we have left the product mix for the time between now and 2030 are actually supporting this EBIT margin development. With that, I would like to hand back to Moritz to explain us how to commence with the Q&A session.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their 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 2. Questionnaires on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and 1 at this time. One moment for the first question, please. And the first question comes from Oliver Reinberg from Kepler-Chevreux. Please go ahead.

Oh, yeah, good afternoon. Three questions from . Marcus, you talked about the order forecasting system has been adjusted. Can you just provide some more clarity? So does it mean now all orders for Q4 are already firm, or can you provide any kind of color? What percentage of your full year sales guidance is already backed by any kind of firm orders? Secondly, just to get a feeling for the phasing, How should we think about Q2? Do you basically plan to at least move towards a positive sales course? Any color here would be appreciated. And then, thirdly, just on this overall pressure from clients to produce more locally, where do you stand on this? What can you contribute? And I think as part of that, in the past, there was also M&A discussions. If there's any update, it would be great. Thanks, Markus.

Yeah, thanks, everyone. Let me start with your third question. At this moment in time, we are actually very cautiously trying to cover the Chinese markets, particularly as far as our customers do have exposure in China with local final assembly and final testing. with certain materials to be sourced in China. We have planned to do something similar for a, let me call it maintenance part in the United States, which at this moment in time has a nice balance of complexity, sales volume, and tariffing. in the United States. We are very cautious about that. I think it's worth mentioning that particularly in the consumable space, some of our contracts actually foresee that as soon as we are building a second or third liner, that these liners would have to be localized. I think the discussion in instrument is slightly behind that as everyone sees that splitting up already, and don't get me wrong when saying that low volumes, you see we are manufacturing in the hundreds, not in the thousands or ten thousands, that splitting up that volume immediately comes along with a price tag. At this moment in time, our customers see that the relevant end markets are not prepared to cover that, but certainly the pressure is increasing more and more particularly as we see that our customers in the United States obviously see the tariffing and actually see that some activities have to happen at this moment in time. I think quality and actual pricing coming out of Europe particularly with strong support of low-level manufacturing in Europe at this moment in time has a positive contribution to pricing as well as to quality, but we believe that there is a threshold. That means that in each and every case when we are discussing that we are offering that, but at this moment in time our customers still see the advantages of maintaining the setup, but this may swap fairly fast. Now getting to your first question. And please allow me to not provide you with any percentages. What I was trying to get across is that we obviously have a number of customers which are used to a fairly precise forecasting system which rolls in the next three to six months as actually binding orders. The forecasting system within this customer is established. They are actually transferring their own forecasts coming from their relevant country organizations into a centralized forecast and are providing that. If we look into the statistics of the past, we have high forecasting realization and actually have an excellent cooperation in terms of what makes our customers positioned to actually fulfill their forecast. On the other hand, over the past years, We have issues that particularly smaller ones or actually customers which have an early stage product tend to move their forecast and in that case it's like the latter cases. We have switched away from a forecasting model which can be adjusted over time into a real firm order system and particularly for customers with high volumes by the end of the year. But having that history of moving forecasts and orders, we have switched this forecasting system into an order system, which makes it like the end of your business, way more transparent already at this moment in time as it used to be the case in the past.

Hi, Oliver. Thanks for your question. So regarding Q2 for the expectations. So when we're looking into the top line, I think we can fairly assume that we are coming back to the revenue level of last year, of the second quarter, 2025. And we're even expecting a slight increase on the service parts and maintenance, which would help us also on the earnings side. So we will definitely see for sure an improvement compared to the Q1 and coming back to the level of Q2 last year. Maybe even with a little upside.

The Q2 margin would be up here in years. What do you say, Tania?

No. Q2 this year, you could imagine from the revenue side to come back to the level of Q2 2025. hopefully even a better participation of the service parts, consumables, which would give us also a little bit of an upside on the earnings side compared to last year's Q2.

Perfect. Thanks very much indeed.

You're welcome. And the next question comes from Michael Heider from Bärenberg Bank. Please go ahead.

Yes, hi, Tanja, Max, and Jan. Thanks for taking my question. I have one left. So, in Q1, your gross margin dropped quite significantly, and I presume this is mainly mixed. You explained this, and I would assume that this is more being driven by low consumables and spare parts sales rather than mixed within the instrument sales, but maybe you can elaborate a little bit on this. A related question to this is, well, I mean, you already mentioned that you expect service parts and maintenance coming back somewhat in the second quarter. But still, how – I mean, can you give a little bit more light here as well? How sure are you that it's just working capital optimizations? Are we talking – just about one larger customer, or do you see this with several of your customers at the moment? And, yeah, what is your visibility here when this will be over? Thanks.

Yeah, Michael, thanks for the question. Actually, in terms of product mix, unfortunately, both is the case. Let me say the mix is unfavorable in terms of gross margin coming from the instrument and then the relevant contribution of instrument versus maintenance parts and spare parts. We were actually trying to analyze if this kind of correlates to Q4 last year, which is actually not the case. So we don't see that our customers bought certain maintenance parts, consumable service parts in Q4, which are now not bought. We just see that the volume is fairly volatile. We definitely have one customer predominantly trying. So obviously, I think it's worth explaining how service actually works. In the case of consumables, we actually ship that. We find a nice correlation of shipping volume and the correlating cost. add to volume, which then has to be stored at customer side and obviously shelf life. So this is actually like a relatively short-term business. In the case of maintenance parts, actually we are offering certain minor discounts to our customers if they are ordering bulks. But typically we are shipping like at least two to three bulk shipments per quarter. So this is not the case here as well. And then obviously for, particularly for spare parts, we are delivering based upon minimum inventory levels to our customers. And then they are typically shipping to their relevant country organizations or even to cart trunk stock, which is then taken by the fuel service engineer directly to the customer. And in the relevant chain, we fill up again. And what we clearly saw here is that certain customers were acting on a minimum inventory level derived from actual run rates. And driven by the acquisition of one of our customers, we definitely see a more cautious But this is a means to an end, and if we are looking particularly right from the communication we have with our most important customers in terms of spare parts, maintenance parts, that they have achieved a level which from now on makes it more like steady as we saw in Q1. Actually, I think we reported the same thing already in Q4 last year, particularly towards the end of the year. Hope that helps.

May I ask, can you give a hint on your gross margin development, which was the main driver here or which had the biggest impact? Was it the mix within the instruments division or between the divisions?

Largely between the divisions.

Great. Many thanks.

You're very welcome.

And the next question comes from Jan Koch from Deutsche Bank. Please go ahead.

Hi, Markus. Hi, Tanja. Thanks for taking my questions. The first one is on your product launches. During the full-year conference call, you presented several systems that you expect to be launched in the coming years. Which of those are anticipated to be launched this year, and are there any contributions reflected in your 2026 guidance? And then secondly, on input cost assumptions, your margin guidance includes an assumption of rising input costs. Could you quantify this assumption? And additionally, have you already observed an increase in cost due to adverse geopolitical favors?

Yeah. Thanks, Jan, for the questions. Let me high-level answer those questions. Actually, the growth foreseen in 2026, is not driven by actual operational sales from any new product launch, particularly those ones happening in 2026, whereas we have a higher number of highly-priced pre-series and pilots. The growth in 2026 is actually derived from the launches which happened over the past couple of years, and then from 2027 on, we will see new product launches, and definitely We see some input cost increases as a result of the geopolitical situation. Some of them have actually already been factored into our guidance already from the beginning. And obviously, we put some leeway in. However, again, this is a means to an end. At this moment in time, the input prices coming along with certain product shipments are covered by our guidance, and that's why one of the reasons actually in the review why we could confirm the guidance. We definitely, and I hope I managed, and Tanya actually mentioned that during her speech as well, is that we are super cost-cautious, and definitely we have to make sure that we are establishing further cost-saving methods in order to underline our guidance. However, at this moment in time and based upon the things we know so far for the remainder of the year, like product mix, like orders placed, we were able to confirm our guidance.

Got it. Thanks. And one follow-up, if I may. Could you provide an update on the expected compensation payment from the large German company, which you still anticipate?

Certainly we are progressing, but progressing in a way that things are not yet sorted out. So let me inform you that there is arbitration ongoing. The result of debt settlement is not factored into anything, not in any KPI. At this moment in time, there is one further loop of statements to be made. We should not expect like managing expectations cautiously. We shouldn't expect settlement this year, but next year if everything runs smoothly, we can expect settlement by the end of the year. However, nothing factored in so far.

Got it. Thank you.

As a reminder, anyone who wishes to ask a question may press star and 1. And the next question comes from Sven Curtin from DZ Bank. Please go ahead.

Yes, hello. Thanks for taking my questions. And first of all, I would like to know what do you think is the biggest risk for your guidance for 2026 and also for the quite positive midterm outlook? You're writing sustainable margin improvements for 2027 and 2028. And then, secondly, on the inventory level, I remember that you mentioned that it will come down, but not to the level of pre-pandemic levels, but to the sustainable inventory level in the mid-term.

Yes, and thanks for the question. Actually, we are trying to flag the risks which are related to our 2026 guidance. And actually, even further downstream, we are trying to mention those risks, and we have put it in the presentation as basic assumption. It's actually on slide number 11. But let me briefly walk you through that again. For 2026, it's definitely not instrument sales or consumable sales. It's more like service parts and maintenance parts, which to a certain degree, or let me word it positively, which is only forecasted and ordered partly for the remainder of the year, which means it underlies basic assumptions, some forecast, some historical data, some statistics, some utilization rates, some derivatives from install base, which is giving us good indications. However, some of the orders are not yet in the book, so that's probably the biggest risk factor. in our 2026 guidance, and again, allow me to mention that a product launch is not required to, a meaningful product launch is not required to fulfill the 2026 guidance, whereas particularly for the guidance thereafter, there is a number of lineups, and again, allow me to refer to our full year's presentation where we have put some light around the relevant stages of the product launches, particularly those run for the short term, are in the very last stage. Prior to launch, actually, already some of the approvals already in the books, whereas those launches happening in 28, that certainly this means not just for us finalizing development, again, only the products which are contracted in those development and sales programs which are contracted, have been put in that guidance. However, there are milestones and approvals in between. We were trying to assess that with state-of-the-art methods and statistics, certainly contribution in terms of SA development from our customers. And again, we didn't put aggressive timelines, but certainly there is a way to go in order to get there. I think we have gained enough experience after COVID how product launches and ramp-ups were elongated and particular ramp-up curves are flatter than they used to be before COVID-19, but that is all reflected. Help me out. What's the second part of the question, Sven?

The second part was sustainable inventory level. You mentioned that it will go down, but not to the same extent as it was pre-pandemic.

Yeah, so let me get you like some explanation. First of all, we have extremely elevated inventory levels. However, we managed to get to significantly break down purchase obligations almost at the same level as we have and had inventory levels. There are two factors which at this moment in time are a little bit limiting factors. We have two products which at least one of those programs is contracted. where we build inventory level based upon data provided by the customer, where the minimum business guarantee is still to be taken. And as this product has a very low run rate, we expect the run rate to go up already towards the end of the year, but mainly in the year 2027 and 2028. We are expecting higher run rates, and only then we will manage to work down inventory levels And then on the other side, and that's probably a little bit more complex to explain that, is that towards the end of COVID-19 and the beginning of the supply crisis, we saw that a certain number, particularly the bigger electronic components manufacturers took advantage of the situation and cleared out their product portfolio, which means The legacy products were and still are no longer available. They are trying to keep their margin-heavy younger products up. And at the same time, we saw that the expectations regarding product life cycles, particularly derived from regulatory and from investments made by our customers, are pushed out, which means on the input side, the product life cycles are shortened, whereas on the output side, the product life cycles are getting longer and longer. There are like mainly three ways to mitigate that. One is a more modular development approach. Obviously we are following that whenever possible. Secondly is a redesign. You only do redesign, which often leads to re-verification, re-validation, re-approval, so very costly. You only do that if the product lifecycle of the actual product still has a certain span. But let me say as soon as products are getting mature or even beyond that in like the sunsetting phase, you do not do redesigns on those products. What you actually do is that you do lifetime buys. And we have a volume of about 10 million which will not vanish. And we will work that down as long as those legacy products will be sold. So these products are of value, but we can very much derive from those two components. One, that the product run rate for certain products is not where we expect it to be. And secondly, obsolescence management and last time buys, these are the two positions be residual for the next two years for obsolescence management even longer. However, some of those costs are paid by our customers and please let me assure you that particularly for the high runners, we have highly optimized turnover rates in our warehouse. However, that's not reflected if you are only looking into the accumulated volume.

But you won't get a target ratio for inventories of sales.

If you look into our P&O development over the last years, we stood at 330, 350 roughly. So I think a short-term target is definitely to come down below to the 300. And then we have also a long-term target, so 200, slightly below. But as Markus mentioned, It's always also balancing out of our scaling effects with the suppliers and the customer call-off. But this would be a short-term and a long-term target for us.

Okay, thank you.

You're welcome.

So, there are no further questions at this time. So, I would now like to turn the conference back over to Jan Keppeler for any closing remarks.

Thank you, Moritz, and thank you, everyone, for joining us today. If you have any follow-up questions, please do not hesitate to contact us and the investor relations team. And thank you again for joining us today. Goodbye.