Melexis N.V.

Welcome, everyone, joining us today for the Melexis Third Quarter 2025 Earnings Call. I am Philip Ludwig, Investor Relations Director, and I'm joined by today's speakers, CEO, Marc Biron; and CFO, Karen Van Griensven.

We will start with brief remarks on the business and financials before taking your questions, starting with Marc Biron. Marc, the floor is yours.

Thank you, Philip. Hello, everyone, and welcome to this earnings call.

In the third quarter of 2025, we delivered sales of EUR 215.3 million, landing just above the top end of our guidance. This confirms another quarter of sequential growth and demonstrate that the recovery, while very gradual, continues.

The quarter-to-quarter sales growth was driven mainly by Europe, while Asia Pacific and the Americas were broadly stable. Asia Pacific continues to be our largest region with around 60% of the total sales.

Within our product portfolio, the sales of our motor driver were strong during Q3, especially in automotive HVAC application as well as in thermal management for EV powertrains. Our pressure sensors also performed well, particularly for internal combustion engine such as fuel management and after-treatment system to reduce emissions.

We launched an additional 3 new products during Q3 for a total of 9 products since the beginning of the year. This included a new magnetic sensor for small motor applications such as automotive seats and windows.

We have also launched an upgraded sensor, measuring current voltage and temperature and enabling a more precise measurement in safety critical applications like automotive batteries and DC fast charging. The third launch was a motor driver for smart fans used for server cooling, which is a very demanded application linked to the AI trend.

With a busy Q4 ahead, we remain well on track to approach the record number of product launches achieved in 2024. We have recorded new design wins in the third quarter, including the 2 largest design wins so far for this year.

One of them was for a motor driver, especially designed for the 48-volt architecture of EV vehicle. This is a unique product, and we expect strong growth for 48-volt architecture, which has many advantages in terms of cost, in terms of electrical power density, not only in EVs, but also in robotics.

Overall, we are booking clear progress on our strategy. The number of product launch is on track and will be similar to the record of 2024 with 19 or 20 product launches.

We continue to expand our product portfolio with the ambition to address new customer needs in fast-growing applications driven by the electrification, the premiumization and the automotive trends. The opportunities outside of automotive are still very strong.

For example, in robotics, we have provided our first tactile sensing solution to our customer. Last but not least, we continue to have strong traction in Asia, both in automotive and outside automotive.

We will go in more detail on our strategic progress at our Capital Market Day on November 5. I will now hand it over to our CFO, Karen Van Griensven, to provide a detailed financial overview and outlook.

Thank you, Marc, and hello, everybody. So the sales for the third quarter of 2025 were EUR 215.3 million, a decrease of 13% compared to the same quarter of the previous year and an increase of 2% compared to the previous quarter.

The euro-U.S. dollar exchange rate evolution had a negative effect of 2% on sales compared to the same quarter of last year and a negative impact of 1% on sales compared to the previous quarter.

The gross result was EUR 83.4 million or 38.8% of sales, a decrease of 23% compared to the same quarter of last year and an increase of 1% compared to the previous quarter. R&D expenses were 12.8% of sales.

G&A was at 6.1% of sales and selling was at 2.3% of sales. The operating result was EUR 37.8 million or 17.6% of sales, a decrease of 41% compared to the same quarter of last year and an increase of 6% compared to the previous quarter.

The net result was EUR 27.5 million or EUR 0.68 per share, a decrease of 46% compared to EUR 51.2 million or EUR 1.27 per share in the third quarter of 2024 and a decrease of 27% compared to the previous quarter. Moving to the outlook.

Melexis expects sales in the fourth quarter of 2025 to be in the range of EUR 215 million to EUR 220 million. And for the full year 2025, Melexis expects sales to be in the range of EUR 840 million to EUR 845 million, with a gross profit margin around 39% and an operating margin around 16%, all taking into account a euro-U.S.

dollar exchange rate of EUR 1.17 for the remainder of the year. And for the full year 2025, Melexis now expects CapEx to be around EUR 35 million, previously around EUR 40 million.

So this concludes our remarks. We can now take your questions.

So operator, please go ahead.

Thank you, Marc and Karen. Philip again.

To reiterate, please ask one question with one follow-up at a time and if you have more questions, you can rejoin the queue. Operator, can you please give the instructions?

My first question maybe is on your top line. If I understand correctly, if you look at peers, visibility is still fairly low.

So can you provide a bit more like color on what you see as much as you can into the start of '26? I mean, do you see in line with seasonality a good proxy at this stage?

Or do you think the recovery can continue and you can have above seasonal trend into early '26?

Yes. Thank you for the question.

As we have already mentioned in the previous quarter, and as you mentioned it, indeed, the visibility is quite limited. We have received a lot of short-term orders, even order within the quarter.

And for all these reasons, indeed, the visibility is not -- it's less than in the past, I would say. Yes, we are also now in the middle of the annual price negotiation with our customers.

And in those annual price negotiations, there is also the forecast discussion. And I think it's really too early.

For all these reasons, it's too early to give a helpful view on '26 and even early '26.

Got it. And maybe on the gross margin side, I mean, I can see your inventories are -- on your balance sheet are all-time high.

So I was wondering, how should we think about the gross margin directionally, I mean, from here? Because it seems that you keep your loading quite high.

So you still produce a lot of inventories. So should we expect the gross margin to flatten from here as it recovers?

So you have to sell inventories first and the loading not increasing much. I mean it seems that your inventories is quite high.

So I was wondering how you want to manage it and what's the impact on the gross margin?

Yes, the gross margin, as we mentioned before, it has quite some effects. That are, I mean, amongst others, the euro-U.S.

dollar, which is specific for '25 and which will probably -- I mean, if the dollar is stable, will have limited impact next year. So that could have a positive effect moving forward.

The same is true for cost of yield. Cost of yield today also in Q3 was still quite high.

But we expect as from Q4 that we will see gradual improvement of the cost of yield also of the gross margin. So expectations are that over the next quarters, we will see a gradual improvement of the gross margin despite that inventories are so high.

Does that answer your question?

Sorry, Karen. The cost of yield, what do you mean by that?

I mean you mean the loading or why your yield would be below -- why yield would be below usual right now?

It's higher than usual now, and it will go back to the more usual amount. So the yield is the way -- it has to do with...

I understand that, but why is it more.

Why is it?

More than usual. Why...

It has to do with the ramp-up -- that's already for more than a year. So it has to do with ramp-up issues that we had in one of the fabs and because it's a new process, new technology, and it often comes with, yes, ramp-up issues.

But these ramp-up issues have been solved. That's why we will now expect better gross margins due to that effect.

And how much is it drag?

How much -- yes, it has an impact, a negative impact of at least 2% today.

I had a question regarding the design win for the motor driver on the 48-volt EV architecture. I was curious what's the step-up in Melexis content versus the 12-volt baseline?

And when do you expect sort of sales to be visible here?

The 48-volt architecture is a kind of modern, let's say, new architecture that has been developed by some OEM. Yes, OEM specialized on the EV car.

The advantage of this 48-volt architecture is that you can provide power without consuming too much current. And all the goal is to reduce the current consumption of the battery to keep the range high, but having more power in order to move some equipment that need power, then this 48-volt architecture is more and more used by the OEM.

As a consequence for the IC manufacturer is that you need to develop specific IC that can, let's say, withstand this 48-volt. Yes, and Melexis, we have started to develop this product some years ago a bit in advance because we are close to the customer.

Then it's -- as I mentioned, it's a unique product on the market. And then, yes, we have received our first design win in Q3 for such application directly from an OEM.

And to answer your question, yes, what will be the outlook? Yes, it really depends on the speed of the adoption of those 48-volt architecture.

But now we have in the making more and more products that are compatible with this architecture.

Okay. And second question regards the China EV market specifically.

So I think you've had a series of quarters where performance was better than in the other regions. I think now also in Q3, it was down, but still better than, for instance, North America.

But just wondering around the latest ordering behavior, let's say, the sort of -- is there any change in tone from China, specifically the divergence between Chinese OEMs and what the Western platforms are doing?

Yes. Q3 was a bit lower, but we see already that in Q4, the order from China are back to, let's say, previous level.

Then there was indeed a small dip in Q3. Is it linked to inventory correction?

I don't know. I'm just assuming -- I don't know exactly what is the root cause.

But yes, in Q4, it is back to the regular trend, let's say.

Okay. And any visibility on early '26 or it's too soon to say anything about that?

Yes, it will be too soon indeed. As I answered before, it's too soon.

In general, I would say the funnel of opportunity and the design win are still very strong in China. If we take the top 10 of our design wins in Q3, yes, 6 out of the 10 are coming from China.

It's just to show that China is still very strong.

My first question is actually on the testing you're currently doing with the Chinese foundry. I think you intend to start the production there at the beginning of next year.

So I just want to know any update that you can see, also maybe related to that yield that if you have some early indications how that's going?

Yes. Small correction, we intend to start the production during summer next year.

You mentioned early next year. I would like that it's early next year, but yes, you are a bit too optimistic.

It will be summer. Yes, it's for a current sensor that we have developed specifically for this market.

We have now the first wafers and the development has been done. The design has been done.

We have received the first wafers 2 weeks ago from the fab. Yes, we are now in the process to evaluate the product.

It's too early to give any indication. But yes, the chip exists and the chip is working.

We are now busy to evaluate the performance.

Okay. My second question is on cost, both OpEx and CapEx.

Pretty good cost control over the quarter, both lower than expected, also lowering the CapEx guidance for the full year. Can you maybe explain a bit what's behind it?

Is -- this is a reaction on maybe a bit longer gross margin pressure? Or is it simply you don't need to do those investments at this stage?

Just why it's moving? What did you exactly do to have this good cost control?

And what do you expect going forward?

The cost control, given the uncertainties today, we are just putting control on our costs to make sure they don't increase in the current environment. Also over the next quarters, we want to continue that behavior.

On the CapEx, yes, it has to do with the product mix. There are many elements that are at play.

The product mix has an impact on the CapEx we need. But in general, yes, we see that the pickup is rather slow.

It's pretty -- we have an increase quarter-on-quarter, but it is very slow today. So that, for sure, also has an impact on the current CapEx visibility.

And perhaps to complement, Karen, we could say that indeed, we pay attention to the CapEx. But for all the innovation aspect, all the development aspect, we don't reduce at all the CapEx.

We are still up to speed on the development.

I just want to ask a question on the non-automotive side. You seem to be doing quite a lot in terms of drivers for fan coolers, robotics, et cetera, on that side.

The proportion between automotive and non-automotive has been roughly flattish at about 88-12 for some time now. When you look at 2026, do you see a possibility where your non-automotive will start growing faster than your automotive?

Is that something you can say at this point based on your design wins, et cetera? And in that context, the tactile sensor for the robot, the design win you've got, what kind of -- are you shipping something there?

And when can we expect some volume there?

Yes. On the first question on the overall revenue, let's say, from non-automotive for '26, I think we need to be patient.

In the funnel of opportunity, in the design win, we really see that the non-automotive is more dynamic. I mean the increase is deeper or steeper in the non-automotive than in automotive.

And we really see in the funnel much more dynamic for the non-automotive. Now we need time to convert this in real sales.

It means I don't anticipate, I would say, in 2026 that it will become very, very visible even if -- yes, we are working on it. I'll give the example of the funnel of opportunity.

I can give also the example of the product launch. We will launch probably 19 products in 2025 (sic) [ 2026 ].

And out of the 19, 9 will be for non-automotive. And we are really -- the machine is running full speed for the non-automotive product.

We should be a bit patient for the conversions effects. Coming on your second question about -- sorry, coming on your second question about the Tactaxis.

We will explain more in detail during the Capital Market Day next week. But for the Tactaxis, we have decided to not provide only a chip, but we are -- we want really to provide what we call the solution, which is more of a module.

We will give more detail during the Capital Market Day. And we have indeed shipped the first module to our customers and now the customers are evaluating not only the chip, but really the module.

But it's a big step for us.

Understood. And just a clarification, if I may.

The 2% of gross margin improvement from yield improvement, over what period do you recognize the full 2% or 200 basis points?

It will take a few quarters, but we will probably see already an effect in Q4. It's because we need to go through our inventory before we see the full results.

That's why it is gradual.

But we see it already in our test. I mean in our test results, we see that the problem has been solved, let's say.

First one on your auto business. We heard from a large peer that their conversations with OEMs and Tier 1 suppliers suggest that content growth and mix will be far less positive in '26 than in prior years.

I understand you're going through sort of planning and budgeting and pricing negotiations, but it would be grateful to hear your perspective on content growth into '26 and what's showing up in your order books.

Again, I think it's too early to give comments on '26. We will give outlook for '26 in early '26.

We see that -- yes, there is a bit of 2 different dynamics in Europe and in China. The European customer -- I would say, 1 year ago, the European customers were very cautious, okay?

We see also that the Tier 1 and the OEM are reducing the headcount. And we see the consequence that they postpone new platform, they delay the innovation.

I think since some months, this trend has been reduced, and we see a new dynamic, let's say, in the -- with our European customer. We speak about new platform, about innovation again, but it's quite moderate.

If you compare with China, where in China, there is a lot of traction, let's say, for modern car, modern platform, a lot of premiumization feature in the car. There is a bit of 2 dynamics, I would say.

It's why in our decision, in our budget, we want also to make sure we concentrate enough on the China market. Yes, in terms of content, because your question was about the content.

Yes, I think long term, I think it's clear that the semiconductor content is increasing in the car. It's also clear that this rate of increase depends on the type of application.

I do believe that it will increase more in China than in Europe for the reason I mentioned before.

Two questions, if I may. Firstly, in terms of the OEMs, they started recommencing R&D on ICE platforms.

Is that a good thing for you given the innovation is coming back to sort of your legacy sockets? Or is that a kind of potential risk given that you might lose those sockets?

Just interested what that means for your margins and content in ICE powertrains. And the second question would just be in China.

Clearly, you've got quite capable competitors like NOVOSENSE in China. Given that the China EV market is kind of suffering from very severe excess inventory at the moment, is that a problem for your pricing discussions next year?

I would expect that pricing pressure would intensify. Have you seen that so far in your discussions for next year?

Yes. The first question about the combustion engine.

At the end, for Melexis, we have the same number of content in a combustion engine and in an [ electric ] engine. If the end customer selects an EV or a combustion engine car in terms of chip content, it's the same for Melexis.

What is important for Melexis is that this -- if we come back on the combustion engine, the combustion engine is put on a modern platform because in those modern platform, there are much more comfort feature, safety feature, what we call premiumization, meaning that ICE or EV is the same for us. What is important if the OEM, let's say, reuse their ICE engine, it's important they put this on the new platform, which is the case because now when you buy a new car, you like to have, let's say, enough premiumization feature.

And what we see what the OEMs are doing in Europe, indeed, they refresh their ICE engine, but they put it in a modern platform.

And on the pricing erosion question?

Yes, sorry. Yes, on the pricing erosion, for sure, we like to go to China because there is a lot of content in the car, but there is also a lot of competition in China.

You mentioned NOVOSENSE. Yes, it's a very serious competitor.

And yes, 2, 3 years ago, the discussion with the customer were about number of chips, how many chips can you supply? It was the discussion 3 years ago, okay?

Now the price or the cost is also part of the discussion. And yes, we have cost discussion with the customer.

It's also why we are working on the diversification of our supply chain. It's also why we are working on our internal cost because indeed, we need to improve our cost base in order to be able to have market price with good margin in China.

But would you say last year, BYD was asking for 10% price cuts from their suppliers. Would you say that's about par for next year?

Or do you think it's worse because of the margin pressure they're facing?

I would say the price expectation from our customer last year -- I mean, the price reduction expectation of last year are similar to this year. But of course, they expect a lot and then all the negotiation starts, and we are able to reduce those expectations.

It's why a bit as last year, I think, yes, we expect a price reduction, low middle single digit as last year, I would say. It's also important because you mentioned BYD, which is a very big customer.

And of course, with this kind of customer, we have price reduction. But it's important to realize that we have a long, long, long tail of small customers.

And with those small customers, we don't really discuss price. We have -- yes, I cannot give like that, let's say, the volume or the revenue taken by the top 20 customers.

But yes, we have a very long tail of smaller customers when we don't discuss price. I mean that those price discussions at corporate level have a lower impact, let's say.

I have 2 follow-up questions on inventories. One of the first analysts indeed mentioned that inventories were at record levels.

And this is despite the fact that the scrap was above average, low yields, low gross margins. Now if your gross margin recovers because your yields improve, is there a risk that your inventories will grow even more than they already did in the last year?

That's the first question. And the second question is, is your entire inventory immediately commercially available?

Or is part of it stored in die banks? That's it.

And then a follow-up afterwards.

Our inventory is indeed at historical high levels. But we do not expect from here that it will further increase and the yield has limited impact on this, rather the contrary because it will mean that it goes hand-in-hand with better lead times as well, meaning that you need -- the need for inventory reduces.

The second question was about die banks, I think.

Yes. I think indeed, the inventory is spread all over the supply chain, then we have part of the inventory is ready to ship because it need to go to be able to react quickly, but we have -- we keep as small as possible, let's say, the inventory ready to ship.

And the rest of the inventory is across the supply chain at wafer level before the assembly, after the assembly. So the big part of the inventory is unfinished.

Okay. But then coming back to those inventories, if you have better yields, then more finished product will end up in your inventories.

I also heard that cycle times will be shortening. That means even faster ending up to the inventory.

So that means that you must be selling out faster than today to get your inventories down.

No, because we will order new wafers according to the new yield. And indeed, if the yield is 2% higher, as Karen mentioned, we will order 2% wafers in such a way that we can keep inventory under control.

Okay. Clear.

That's clear. Then another quick follow-up question about China.

You mentioned you have a very long tail of smaller customers in presumably automotive in China. There have been a lot of news articles about excess capacity among Chinese car manufacturers and the risks associated with that and that the government wants normal price behaviors and stuff like that.

What is your -- how you say, counterparty risk with respect to these smaller customers? Do you have a debtor insurance so that -- suppose that one or more would go bankrupt that you still get paid?

Yes. What's the situation on that?

Yes, we -- in most cases, we have a distributor in between. So we deal with the distributor.

We do not have an insurance, a debt insurance, but we monitor this very, very closely. And in cases where we are not confident in the repayment capacity, we ask for a prepayment as well.

So -- and this happens quite a lot in China. That's how we monitor the situation there.

So would you say that the risk of a smaller end customer lies with your distribution partner? Or has it happened that they try to pass part of it on to you as well in a situation like that?

The risk is with the distributor. But, of course, we need -- I mean, the risk for us is on the financial stability of our distributor, of course.

That's why we monitor that very closely.

Thank you, operator. In summary, after 9 months in 2026, Melexis continue to see sales trends improving.

We continue adding innovative new products to our portfolio, and we concentrate resources to our faster-growing market. I would like also to highlight the Capital Markets Day that we will hold on November 5, next week.

Thank you for joining our call, and goodbye.