STMicroelectronics N.V.

Thank you everyone for joining our third quarter 2026 Financial Results Call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO, and Rémi Elouazane, President, Microcontroller, G2 Lycées and RF Product Group. His live webcast and presentation materials can be accessed on the ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause STMOS to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in STMOS' recent regulatory filing for a full description of this risk factor. To ensure that all participants have an opportunity to ask questions during the Q&A session, Please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO.

Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q3 2026 earnings conference call. I will start with an overview of the third quarter, including business dynamics. and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your question. So, starting with Q3. Our third quarter net revenues of $3.76 billion came in above the midpoint of our business outlook range. mainly due to higher revenue in communication equipment and computer peripherals driven by AI data center and low earth orbit satellite revenues, communication and personal electronics. Gross margin was 37.3% above the midpoint of our business outlook range. Non-US GAAP diluted earnings per share was $0.37. During the third quarter, inventory in our balance sheet increased slightly to support the expected increase in Q4 revenues. In distribution, inventory decreased and continued to track below our standard target. We generated positive free cash flow of $351 million. Let's now discuss our business dynamics during Q3. During the quarter, the ongoing recovery and secular growth across the hand markets we serve continued to gain momentum. Demand strengthened further in Q3, with bookings increasing sequentially and book-to-bill remaining well above 2 overall. Book-to-bill was well above one in whole-hand markets and significantly above two in communication equipment and computer peripherals and industrials. Visibility improved, inventory distribution continued to track below our standard target, and demand continued to outpace supply across multiple product categories. Automotive revenues were stable sequentially and increased 5% year-over-year. Our solid position in automotive continues to be driven by application-specific ICs and sensors for core applications, electrical powertrain and headass. We maintain our automotive design momentum with OEMs and Tier 1 suppliers across the portfolio of ST product families including microcontrollers and power and discrete. These wins covered hybrid, electric and internal combustion engine vehicles in areas including onboard charging, powertrain and active suspension as well as a first award for 48V electromechanical braking. We made progress with our automotive MEMS business, supported by the successful integration of NXP's MEMS sensors, achieving several key customer awards in telematics, cockpit control, and tire pressure monitoring. We had another important design win with our in-cabin monitoring solutions, and we introduced a new automotive image sensor for infrared in-cabin sensing. Design to extend driver and occupant monitoring across more vehicles models. Industrial revenues improved 12% sequentially and 40% year over year. This solid growth was mainly driven by our general purpose microcontrollers, analog and power conversion products. During Q3, the broad-based recovery in industrial continued. and inventory and distribution declined further, remaining below our standard target. We had design wins across industrial automation, robotics, power systems, building automation, power tools and home appliances. Our portfolio combines intelligent sensing, real-time control and efficient power management to support the transformation of factory automation, robotics and power energy infrastructures and the growing physical AI market. At the Embedded Worlds North America event, we had a demonstration together with NVIDIA illustrating our broad cooperation on robotics. We showed an integrated robotics development path from digital twin to diploid application based on our inertial sensors, microcontrollers and imaging solutions. We are continuing to strengthen these capabilities with new products. Our latest launch is a miniature 6-axis motion sensor with a machine learning core designed to improve accident alerts, robot teaching, drone stabilization, and structural monitoring. By bringing AI processing into the sensor, systems can reduce energy use and save resources. In embedded processing, we continue to expand our STM32 offering with a strong pipeline of new products and software innovations. You will hear more about these at our STM32 Summit on November 3, followed by a dedicated STM32 Analyst Call on November 18. For personal electronics, third quarter revenues came in better than expected, up 12% sequentially and down During the quarter, we had design wins with secure solutions, maps and imaging sensors, and microcontrollers across a variety of devices, including smartphones, gaming headsets, earbuds, and smartphones. For communication equipment and computer peripherals, Third quarter revenues were above expectations, increasing 14% sequentially and 64% year-over-year. This strong growth mainly reflected the contribution of our company-specific cost drivers in AI data centers and low Earth orbit satellite communications. For AI data centers, We continue to see strong demand driven mainly by our silicon photonic ICs, electronic ICs, and microcontrollers, as well as power solutions. This supports our revenue expectation for 2026 of about $1.3 billion and assuming the current dynamic continues and with the current engagements we have, Our revenue ambition of well above $2 billion in 2027 and further growth beyond. Now, over to Lorenzo who will present our key financial figures.

Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the third quarter, starting with revenues on a year-over-year basis. By reportable segment. Analog product, MEMS and sensor glue, 8.8%, mainly due to MEMS and, to a lesser extent, analog and imaging. Powering discrete products increased 11.3%. Embedded processing revenues were up 24.1%, mainly due to general-purpose microcontroller. and RF Optical Communication grew 46.2%. By end of the market, communication equipment and computer peripherals grew 64%, industrial 40% and automotive 5%, while personal electronics decreased 4%. Year over year, sales to OEMs and distribution increased 10.2% and 38.8% respectively. On a sequential basis, by reportable segment, analog product MEMS and sensor increased by 9.4%, power and discrete by 2.8%, embedded processing by 5.7%, and RF optical communication by 13.4%. By end market on a sequential basis, communication equipment and computer and peripheral grew 14%, industrial 12%, personal electronics 12% while automotive was flat. Turning now to profitability. Gross profit in the third quarter was $1.40 billion. Increasing 32.2% on a year-over-year basis. Gross margin was 37.3%, increasing 410 basis points year-over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin increased by 250 basis points. Q3 gross margin included about 60 basis points of unused capacity charges and about 40 basis points of negative impact resulting from non-recurring costs related to our manufacturing reshaping product. Looking beyond these near-term effects, improving our gross margin remains a key priority. We remain committed to achieving the 44% to the 46% gross margin of our intermediate financial model once our manufacturing reshipping plan is completed. Starting from the approximately 39% gross margin expected for Q4 26, we see a clear path to margin expansion. Q4-26 temporary add-ins, including approximately 40 basis points from unused capacity charges and approximately 30 basis points from non-recurring costs associated with our manufacturing reshaping program, are expected to largely disappear during the second half of 2027. We continue to expect more than 400 basis points of structural gross margin improvement from the reshaping of our manufacturing footprint. This benefit is expected to materialize as a step function either toward the end of 2027 or in early 2028, subject to the shutdown of legacy FAPs and customers' qualification timing. Finally, we expect better mix and price to contribute to margin expansion over time, while input cost increase is expected to be a headwind. The timing and the magnitude of these effects remain more difficult to assess. Moving now to total net operating expenses. In the third quarter, this amounted to $979 million, excluding restructuring. Non-US GAAP OPEX stood at $972 million, better than the indication we gave in July, reflecting continuing cost discipline. For the fourth quarter of 2026, we expect non-US GAAP net OPEX to stand at about $1035 billion. The sequential increase is mainly due to the calendar days affected net of vacation. This would lead the full year 2026 non-US GAAP net of PECs slightly above 3.8 billion dollars, in line with our expectation. In the third quarter, we reported operating income of 367 million dollars, which included $55 million for impairment restructuring charges and other related phase-out costs. These charges are related to the execution of our company-wide program to reshape our manufacturing footprint and to resize our global cost base. Q3 operating income also included $7 million in purchase price allocation effects from our acquisition of NXP's MEMS sensor business. Excluding these items, Q3 non-US GAAP operating income stood at $429 million, and non-US GAAP operating margin was 11.4%, with analog products MEMS and sensor at 14.1%, Power and discrete are negative 17.1%, embedded processing at 23.1%, and RF optical communications at 26.2%. Third quarter 2026 net income was $291 million compared to $237 million in the year-ago quarter. Diluted earnings per share were $0.31 compared to $0.26. Non-U.S. GAAP net income stood at $344 million and non-U.S. GAAP diluted earnings per share stood at $0.37. Net cash from operating activities totaled $1.02 billion in the third quarter. compared to the $549 million in the year-ago quarter. Net capex was $643 million in the third quarter compared to the $401 million in the year-ago quarter. Precash flow was positive at $351 million in the third quarter compared to the positive $130 million in Q3 2025. The inventory at the end of the quarter was $3.25 billion compared to $3.19 billion in Q2 2026 and $3.17 billion in Q3 2025. Day sales of inventory at quarter end were 126 days, better than our expectation, unchanged from the previous quarter and compared to the 135 days in the year-ago quarter. Cash dividends paid to stockholders in the third quarter of 2026 totaled $83 million. In addition, Estee executed a share buyback of $91 million. Estee maintained its financial strength with a net financial position that remains solid at $2.11 billion as of September 26, 2026, reflecting total liquidity of $5.31 billion and total financial debt of $3.21 billion. Following the exercise of the corruption for the early redemption of Estee's convertible debt due in 2027, bondholders exercised their conversion rights on the total $750 million convertible bonds. Estee settled the bonds on a net share basis, delivering $750 million in cash and about a $4.2 million share from treasury stocks. Finally, while we are not providing quarterly indication for 2027, for modeling purposes, please note that 2027 will have 86 calendar days in Q1, 91 in Q2, 91 in Q3, and 97 in Q4. Now back to Jean-Marc who will comment on our outlook.