HMS Networks AB (publ)

Welcome to the HMS Networks Q3 presentation for 2026. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Staffan Dahlstrom and CFO Joakim Nideborn. Please go ahead.

Thank you, operator. Good morning, everybody. Welcome to this quarter three report call. Myself, Staffan and Joakim will take you through a brief overview of the report we released this morning. Let's see if I can. How does this work, Joakim? Here we go. Activate slide, right? So we'll start with the business update and then Joakim will move into a financial summary and we end up with a short Q&A at the end. In general, we feel this is a stable and strong quarter for us. We are happy to break the billion sick barrier in our revenue. 1 billion 24 million in revenue where we are growing double digit organic plus 6%. We are happy with this. Order intake continues to be good, 1.1 billion. Good growth, 29%. There is also an element of pre-order. We have been informing you about long lead times, especially for memories and semiconductor. This also makes customers do a little bit of early orders with us. We estimate this to be 70 million in the quarter. So it's a smaller part of this, but we are seeing this, and this is probably something we'll see in the coming quarters as well. We also do a good improvement of their profitability, 280 million in EBITDA, and this gives us an improved margin of 27.4%, quite much over our long-term target of 25%. Continue to see a very good and stable cash flow, 333 million this quarter. And we are seeing a more or less flat adjusted EPS with some bookkeeping technicalities there. Joakim will talk a little bit more later. So the first nine months, we are seeing a continued stable growth up 14% and orders are up 23%. So the markets are improving and Joakim will talk a little bit more about it, but we see that The German market has been fairly weak in the past. We see signs of improvement. It's getting better there. We are very happy to see a continuous strong Chinese market for us. And we also see that a lot of Japanese companies are coming back after a very long time of quite high inventories and a bit negative market, but we are seeing that as well. And our big market in the US is continuing to be quite good. So the first nine months looks good. We talked about the revenue. We see part of this drive in the market is I think there are three elements. There's a general uptick with the strong PMIs and the markets are improving generally most of the markets. But specifically, we are seeing a continued growth in the enormous investments in data center automation. When we say data center automation, that's more like the equipment, the incoming power, the ventilation of these huge buildings they are building. So we're not part of the compute part of the data center. It's much more the automation part around the big buildings. We also see a continued very positive development in the semiconductor field where our customers there are the manufacturers of machines and different components that is used in the manufacturing of semiconductor where investment remains very strong. However, as we reported before that we expected to see, we see a pressure on the gross margins, both from tariffs, but especially also increased cost of semiconductors and some materials that we use in our products. We will mitigate this with price adjustments from Thank you very much. Thank you. We made a public tender for a small Spanish company in building automation. I'll be back with more information in a second. And we're also very proud, I must say, to receive a global certification of the International Information Security Standard ISO 627001 The reason we are proud is not that we have a diploma on the wall. We believe that this is a very important subject for us, both for our products and our customers, but also for our internal operations. The fact that we have this now also gives us comfort in that we have good processes, we have good teams, and we are working proactively. This is something that we and all other companies are concerned about, but we think this is an important step to make sure that we are professional in this area of information security. A little bit about this small Spanish public tender we did this quarter. Robot is a Spanish small company in building automation. and you know we have a building automation part in our new industry division it's the smallest part we have but they've been looking into finding new building automation special verticals today with our Intesis brand we are very strong in a small niche in AC and HVAC for larger buildings this company Robot is a niche player very successful in Facility management for hotels, both with how you control the room where the hotel guests are living, but also in the bigger operation when it comes to power and heating and these things for the building. And they started many years ago in Palma, Mallorca. Thank you for joining us today. The main USP here is to make energy savings for the hotel owners but also of course convenient and flexibility for the guests at the hotel. Small company, 65 people, mainly in Palma where they have R&D, manufacturing and sales. But this is also in Catalonia, very close to our own business in Barcelona. So I think the fact that our team in Barcelona and this team in Palma have been really working well together in this process and it looks very positive and the sellers of the company feel very comfortable that we have this Catalonian base and they trust us for the future. So we see that this is a good step into growing the building automation business. This was a small public company, so we made a public tender and we were there with the team last week to meet them and they had their extra general meeting to talk about how to approve this and there's a process now to get in the remaining minority shares and the expectation is that this will close before end of the year. Everything looks very good and we are quite excited about this. It's a small business, but we're very happy to see that these kind of niche players can form something together with our new industries division. All right. With that, I would like to hand over to Joakim to talk about the financial numbers.

Thank you for that, Staffan. And we will start with order intake as we normally do. And as you saw, 1.1 billion in order intake, a good improvement from last year with an organic growth of 22%. Staffan also mentioned this small pre-buying behavior that we saw because customers are getting worried about lead times and price increases and these kind of things given a component market and placing some orders in advance. We saw similar behavior in the first quarter, not so much in Q2, and I think we expect to see this going forward as well, that we see orders placed over a longer period of time. We saw this before also in 21, 22. And now we see not at the same extreme as it was back then, but we see similar behavior. So the underlying growth, if you would take that 70 million into consideration, would still be 14%. So it's still a good growth on the orders. Geographically, we are quite happy to see that APEC is continuing to develop strong and China has been performing very well for us now for almost two years. And those of you who have been following us, we've been complaining about Japan has been having a lot of inventory. Our customers in Japan has been having a lot of inventory for the last few years. And now we really see that something is happening again here. That inventories are coming down and they are ordering again. So it's same old good customers that are placing orders. We would have been having quite a Very limited amount of orders for the last, well, two years or so. And then we also see EMEA, quite important market for us that is growing now 20%. And I also want to mention the German market and the DACH region that is performing well, growing also in line with EMEA. And we're happy to see that that is starting to move a little bit also. I mean, it's been improving throughout the year, but now we're doing better than we've been doing for many quarters. So that's also good to see. North America has been the main driver of our order intake for, I'd say, almost the last two years. And that is still growing, but not as much as before. So we're down to almost reaching a 10% growth in North America. And I think overall, we feel it's good that we can have different markets that are driving at different times to make sure that the overall picture is solid. And Staffan also touched upon the main drivers. We still see data centers, semiconductor industry is doing very well. We always get the question, how much business do you have out of the total into these sectors? And we expect that to be maybe some 10%, maybe slightly more. And that's a direct exposure. And then we're sure that we have a decent indirect exposure as well. It's very difficult to quantify. Also going over to sales, also stable development. Now we're starting to meet tougher comparables. So we had a strong ending of 2025. And we're seeing now the, just as Staffan said, meeting the billion mark. Good to see first time over one billion. Organic growth is 6%, so not as high as on the order side, but also in relation to those comparables. We see that I forgot to mention on the orders but we have the INT division is performing extremely strong both in orders and on sales and we'll take a deeper look into that when we go into the divisions. So we can see that we're building a bit of order book, book to bill 1.09 in the quarter and it's good that we see this order book build up for the future that we will have solid sales for coming quarters as well. Then going into the divisions with IDS first, Industrial Data Solutions, that had a bit of a soft quarter, you could say. On the other side, we were actually down 3% organic to 404 million. And the main reason for that is that you know that we have some of these bigger product orders from time to time. And in Q3, those were rather weak. The underlying business is developing fine. So with the bread and butter businesses developing pretty much as expected. But we hope to see some of those larger orders coming in as well to support the growth in IDS. On sales side, we're growing organically 2%, 448, which in itself is a quite good number for us. And just as you see here, if you look at the end of 2025, you see that IDS had a very strong ending to the last year, which will also make it difficult with the comps in Q4, obviously, on sales. I also want to mention some changes on the tariff side that is impacting IDS a bit. So we've been seeing now a pretty big fight between Canada and the US, which is impacting us actually in two ways. Both that we have some suppliers of, we have an EMS in Canada delivering into IDS. So we have imports from Canada to the US on raw material and semi-finished goods that is impacting. And then also when we sell to Canada, obviously we see major tariffs on that. We hope that that will be resolved fairly soon and we're monitoring the situation closely to potentially take some measures for next year. We'll hope that that will be resolved to a more decent environment to do business. And then going in maybe to the highlight of the presentation, the INT division development. And here we see a 94% growth on orders out of which 70% is organic. And we have almost all of the pre-buying orders we see in INT. If we were to also adjust for that, then we would be at organic growth of some 45%. And I also want to mention what you see on the bars as the green area with the acquisition the last 12 months. We made an acquisition from OLEX and I think 2nd of January we closed the deal. and we communicated in Q1 that we thought we had basically received the orders for the year after Q1 and we're riding a lot on the semiconductor and data center trend here with continued nice order intake from that business. Some of that is part of the 70 million, around 10 out of the 70 million boost is related to this business. So it's also a fair amount of the rest of INT that is seeing these longer orders. And just to repeat what was said before here, we also really see strong demand from semiconductors and data center segments, both on gateways and from the semiconductor side with more embedded business. So it's a good wide demand from that side. Sales also continue to improve solid, not as volatile as the orders, obviously. We do 341 million, which is an organic growth of 16%, which we think is fairly good for this business. And then we have new industries, solid development. We've been seeing on the margin side a bit bumpy as you see on the red line on the bottom left. Now we have a better quarter with margins very close to our long-term target of 24.7%. Organically good business, both on orders and sales, 11% growth organically on orders and 14% on sales, where both businesses are developing quite well. For building automation, we see Europe as the driver, and for vehicle communications, we actually see Asia and America as driving, since we have part of the exposure towards the European automotive industry, which is obviously not developing fantastic. So it's good again to see that the markets are complementing each other for different parts of the business and overall picture is fairly good. Over to profitability, we have record EBITDA of 280 million, so a 27.4% margin, which is very much in line with what we see year to date, also 27.1%. So we get the question from time to time if we're going to increase the target from the 25% that is our long-term target to something else and we believe it's kind of good to be a little bit ahead on this stage. We know that acquisitions are most of the time dilutive and we would like to have a 50% of the growth to come from acquisitions and that gives us some space to acquire. And then we also want to have the opportunity to invest more in organic growth initiatives which we will be looking into going forward. Gross margin has been a hot topic also for us to understand what will happen and we do see quite a bit of pressure from component prices and now also tariffs. In the third quarter, and that is affecting most of our product portfolio. I think we're quite happy to be able to show 62.7%. We probably believed it could be a bit worse. And we actually do have, it's almost a bit strange to talk about this, but we have a positive effect of 3 million due to tariff refunds from 2025 tariffs. On the other side, we have significantly higher tariffs than 3 million in the quarter from the current tariffs that is in place. But if you want to exclude from that one of 3 million, you would be looking at 62.4 in the underlying gross margin. And I think going forward, we believe that we will have a slightly challenging Q4 and maybe also Q1 Maybe it's even so that Q1 will be more challenging than Q4 since there will be higher cost increases and our price increases that we will make from January 1st will not have full impact from like Q2 or so given the backlog. So we might see a slight pressure on on gross margins. We've been seeing now that volume is mitigating and also a positive currency situation with the weaker Swedish crown is good for us. So that's kind of offsetting this impact a little bit. So we expect that to be in the short term also supporting Q4 and hopefully Q1 as well. Then going to OPEX, not a lot of drama there. We have an organic increase of 6% to 391 million. And the main things that are driving, of course, salary increases compared to last year, then half of that roughly. And then we have some increased investments in R&D and also in building up an internal AI organization to improve our processes that is now in place and costing a little bit. So all positive things, we believe. We're increasing capitalized R&D slightly from 19 to 21 million in the quarter and we're running a pretty high pace in developing new products at the moment with big initiatives both in INT and IDS which I think we talked about before as well. And now let's take a look at the earnings per share and here you might be surprised to see pretty much a flat development versus Q3 2025. And I think the main thing that might not be obvious that's happening here is that we have a currency effect revaluation of internal loans or group internal loans that's been revalued by 22 million, so a negative impact of 22 million. This is not cash flow impacting, it's just the way IFRS wants this to be presented. And if you were to take away that effect, you would be looking at an adjusted earnings per share that is 4.20 sec plus. So then you would see that the increased performance also spilling over to earnings per share. And then one of my favorite parts in the report, the cash flow, 333 million, not quite as good as in Q2, but another very strong quarter on cash flow. I think it's fair to point out that we do have some help from an increased accounts payable, roughly 50 million, that is supporting us in a temporary increase in accounts payable. And I mean, this will obviously be reversed rather soon. So I think we will probably have a difficult time to show a similar amount of the cash flow in Q4, given that accounts payable will be paid down. You know how it is with working capital. It goes up and down. Now it just happened to play out well for us in the quarter. And in terms of inventory, we're developing fairly flat. We've been having a lot of support from inventory decline over the year. And I think now we're in a position where we would actually prefer to be able to build some inventory. to secure deliveries for 2027. And unfortunately, a lot of those components that we're looking for is in allocation. So it's a difficult situation to build the inventory, but we will try to do what we can to secure deliveries for the coming year as well. Then we have our net debt that is continuing to decline in line with good performance and no recent acquisitions. So we are now down to a net debt through EBITDA of 1.52 if you exclude for the IFRS 16 methodology, which I think we're quite happy to see and reducing that from 2.77 A year ago, so 1.27 times reduction in 12 months with a dividend and acquisition along the way. I think we need to be happy with that development. And this also puts us in a good spot to continue the M&A agenda and we have good activities in our divisions in doing that as well. And then to summarize before we open up for questions, what we would like you to take away is that we see now strong development in APEC in Europe before it's been more the North American markets that have been driving. Now we see that we offsetting that slightly lower growth with a good growth in APEC and Europe instead. And also that we see a sequential growth over the quarters in 2026 if you adjust for these pre-buying behavior. Ross Martin still under some pressure from tariffs and component price increases. We think we're getting away okay and we will have to wait until 2027 to see improvements there given the price increases that we're going to make from year end will take effect. And then finally the profitability and cash flow quite solid a bit over 27% now for the third quarter straight and cash flow about 330 million for the second quarter straight. So solid performance here as well. And now operator, I think let's open up for some questions from the audience.