Basler Aktiengesellschaft (BSL) Earnings Call Transcript & Summary

Hello, and good afternoon, everyone. I hope you can hear me loud and clear. A warm welcome to our Q3 reporting. So first 9 months of Basler, our earnings call. And I'm happy to present you today, very solid and sound and good numbers in these turbulent times. As usual, I will start with an executive summary, followed by a deeper insight into the key financials. We will then have a quick glance at the share performance. And last but not least, I will give you an outlook for the remainder of the year and for our midterm. After the presentation, we will for sure have enough time for a Q&A session. Let's start with the executive summary on Slide 3. I would like to give you an update first on the COVID-19 impact to the company as this is still valid and we see the rising cases happening. So after 9 months of COVID, we are happy that our priority on employees' health was and is successful. The team is healthy and in full function around the world. All employees are very motivated to master the corona challenges and to move forward the company. So we are really in full swing and full -- working in full throttle. And we are also actively using these challenging times to increase our market share and to increase our competitive advantages. Even though we are not seeing it coming, the company is well prepared also for potential corona-related setbacks. As I mentioned, we are not seeing this coming, but we are well prepared. We did our homeworks already in Q1, Q2 of this year, to have plans in the shelf if the situation will worsen. So for the last 9 months, we can report a performance above market. Slide 4 gives you more details about it. First, starting with the market environment. The German industry for vision components is down the first or was down the first 9 months. So with billings minus 7% and bookings minus 10%. So our peers seem to have a very difficult time at the moment. The automotive industry in general -- and general machinery is highly affected by COVID-19 still and was in the first 9 months. We also -- or we have seen beginning of this year, a strong demand in the electronics and semicon; but in Q3, as expected, we saw that this demand declined. We see continuing growth in logistics and also in medical businesses. However, in medical, we see, ophthalmology, for example, as a sector that -- where the demand is lower at this point in time because hospitals are focusing on COVID-19 issues. The recent increasing PMIs indicate market improvements and also make us positive, and we will later on come to the outlook that we are seeing light at the end of the tunnel of the general automation market decline due to the corona situation. So within this difficult market environment, we were able, in the first 9 months, to grow our bookings and billings by 5% each. Our earnings after tax even grew almost 50%, so 47% in detail. So we had high sales, high gross margins and good economies of scale. Our regional and vertical market diversification helped us to grow the business, especially our strong presence in China, where we are very happy about our strategic investments we did over the past 2 to 3 years in this market, especially with also going direct into this market. Also our 2 production sites in Germany and in Singapore gave us a very solid supply chain and production over the first 9 months of this year. So with an R&D quota of almost 14%, we are innovating full throttle. And on Slide 5, you can see our recent product launches that came to the market within Q3. So we further leveraged our new ace 2 platform with new products on it. We expanded our medical product line with higher resolution products. We entered full production stage with our latest 3D technology, the product is called Blaze, and we are continuously widening our offering of companion products in order to move or to move forward our journey from a camera supplier to a full-range provider. We also, that is not shown on the slide here, but continues to invest heavily in the embedded vision sector in order to move forward our projects that we have here with customers and the technology base of embedded vision technology. With regard to the organization, there was not much development in the amount of stuff and also in the amount of staff over the last, let's say, 9 months. You can see this on Slide 6. We added, let's say, only additional 4 FTEs and the distribution of staff did not significantly change. So worldwide, we are 810 FTEs around the world and approximately 60% of those employees are working in sales, marketing and R&D. And it's really worth to mention that the majority of these people are not working on the day-to-day revenue, they work on winning new design wins on designing new products, so they work on future revenues. So I'm closing the executive summary and move over to the financials, starting on Slide 8, and we start with the development of our bookings and billings. With regard to the bookings, we had a very strong start into the year because of lacking COVID-19 effects in January, February, but also because we got a last time buy order from a life science customer and strong semicon/electronics demand kicking in. So this led us to the, what you can see in the chart, EUR 53 million. So very high order entry spike in Q1. So the orders, as expected, weakened over the course of the second and third quarter. And we believe that with the EUR 36 million in Q3 in bookings, we have seen the bottom of this trend. And from Q4 onwards, we believe that the bookings will increase again due -- mainly due to the reason that we believe that the semicon/electronics demand will come back because it's normal that we have in the second half of the year, a weaker season, and then by end of the year and beginning of next year, typically in the semicon/electronics customer start to order again. The revenues, as you can see, followed the bookings with a little delay. And the backlog that was built in Q1 here, the, let's say, additional EUR 9 million between EUR 53 million and EUR 44 million, that was eaten up over the course of Q2 and Q3. So that by end of Q3, these extra, I would say, backlog that we created in Q1 was more or less eaten up. All in all, as I said, we expect bookings to rise again in Q4; but the billings, we expect to be around the third quarter bookings, which is around this EUR 36 million because it takes a little time delay until the higher or the increase in bookings will also then led to an increase in billings. So the revenue distribution is shown on the next slide, that is Slide 9. And with 54%, the Asian portion, as you can see, our revenue is relatively high due to the strong demand in semicon/electronics and also due to the economic strength of China because China is less impacted by the COVID crisis. We are happy to have such a global footprint at this point in time in order to balance out the corona effect. And we see that looking at the industrial numbers from the whole industry, from the VDMA that I mentioned earlier, report a shrinking market. It clearly gives us a competitive advantage at the moment to have such a global presence and balance out the negative effect of the market that we see in Europe and North America at this point in time. One step further down the profit and loss sheets, we are coming to the gross profit margin development and the gross profit on Slide 10. So even with this high Asia exposure and also larger projects in semicon/electronics, our gross margins are on a high level. They dropped a bit in Q3, mainly due to currency effects and also due to lower utilization rates with lower revenues, and thus, lower economies of scale and production and material management. But in general, we see the gross margin to be high at around, let's say, 52% on average this year, and we also foresee that if the orders will increase again and then with a little time delay, book billings increase again, that we will stay also in the area of, let's say, these 52%, maybe 51%, but above the 50% line. So the bottom line development, our earnings before tax is shown on Slide 11. So what you can see is that the stable top line, the high gross margins and the extraordinary savings that we realized due to corona, for example, less travel cost, less exhibition shows resulted in high earnings margins over the first 3 quarters with a slight drop in Q3 because of lower revenues. But we are with this earnings level around on the earnings margin level here around 14%, is higher, as you know, than our expected earnings or, let's say, our steering point of 12%. However, we have to keep in mind that we have these extraordinary savings at the moment, that in normal times, we won't have on the OpEx side. So summing up the profit and loss sheet year-to-date on Slide 12. So order entries, EUR 128.3 million, so 5% growth. Sales, also 5% growth, EUR 129.2 million. Gross profit, an increase of 2.6% points, so significant increase over the course -- over the first 9 months of 2019. The main reason behind that is that we had specialty effects on the M&A side when taking over the stock levels from our formerly distribution company in China. So this led to lower margins in 2019, which -- and in 2020, we did not have this effect again. On the EBITDA, so we have a 22% increase. We have almost similar level of depreciations, approximately EUR 9.5 million in both years or in the first 9 months of both years, so that the increase in EBITDA is less than the increase in the other earnings figures that you see further down. For example, here, earnings before tax is up 38%, even to EUR 18.1 million and net income even up 47% because of even lower tax rates and the net income that we achieved in the first 9 months is EUR 13.7 million. So all in all, profit and loss sheet, that we are very satisfied with, especially in the light of all the turbulent times of the first 9 months. So changing the perspective from P&L to cash flow on Slide 13. So the strong earnings resulted also with a little time delay and increasing free cash flows. It is also worth to mention that the -- we had in the second quarter, an extraordinary effect. So within these EUR 9.7 million investing cash flow in the second quarter, approximately EUR 5.5 million are extraordinary M&A effects from earn-out payments for the China transaction. So this meant by middle of this year, we are also -- we are holding now the 100%, but there are no other payments to be done, and we were able to eat these payments with our, let's say, operational cash flow development within the same quarter. Normally, maybe to give you also a feeling here, the investing cash flow is more in the range of EUR 4 million to EUR 5 million with run rate investing investments. So that means that when we achieve approximately a EUR 10 million operational cash flow, we would then have a free cash flow of approximately EUR 5 million. So the year-to-date cash flow figures can be seen on the next slide, that is Slide 14. We started the year with EUR 35.2 million cash in our cash accounts. We had operational cash flow, cash in from -- of EUR 25 million. We invested EUR 17.9 million, including these extra payment for the M&A transaction that I mentioned. And this means we -- and we have year-to-date, our first 9 months, EUR 7.1 million free cash flow, so much stronger than the cash flow of the previous year. Although we have also to mention, we had also M&A investments in that year. So from financing cash flow was more or less neutral. So we -- and this is why we ended at around EUR 42 million in our cash accounts by end of September this year. What does it mean for our net cash? So the net cash position increased from EUR 15.7 million by beginning of the year to EUR 17.5 million. And this strong net cash plus also our treasury shares and the cash position gives us a very sound financial position to push forward our growth strategy and also it is a safe cushion for unknown COVID risk that might come up or might not come up. We need to see. So I'm closing now the financial section and will change to the outlook. But before we have a very quick glance to the share performance on Slide 16. So over the course of the first 9 months, the share price showed significant volatility. I mean, that's due to corona, mainly. And also the share price developed more or less with the market, closing end of Q3 at a similar level than beginning of the year. As you can see on the slide also the pretty similar development to the [ TecDAX ] index. So what we can see is that the guidance increase in summer created certain momentum. And over the course, let's say, over the last -- of the third quarter, the momentum went down. I mean, we hope that the market will honor our sound results that we are demonstrating now but let's see how the reaction of the market will be. Having this said, I will come to the outlook, starting with the year-end guidance on Slide 18. So overall, the demand in the first 9 months of 2020 was better than what we expected after the COVID outbreak in the first quarter. The PMIs at the moment indicate further market improvement. But in general, we see that vertical market demands are very diverse. So some verticals are strong, some others are very weak. And we all see rising infection rates at this point in time that foster uncertainty that needs to be considered. This means for the fourth quarter, we expect that the order entries from semicon/electronics will start to rise by the end of the year. So the drop that we have seen in Q3, we believe step-by-step in Q4, this sector will -- the bookings will increase again. So the season for vision components in the semicon/electronics will typically kick in then in Q1. And so far, we also believe that we can -- we will see similar kind of investment behavior than this year. This is our assumption. So the automotive CapEx and also general automation and machine building will slightly improve. We see this already in the PMI, but will remain relatively weak on a year-to-year comparison. So it's not back where it was before the crisis, so it takes more time. So business with logistic companies, we see continue to grow. There's also certain willingness to invest happening at the moment. We see further growth in China. As China is being -- the COVID impact of China is limited at the moment, and the economy is relatively strong compared to North America and Europe. And due to the rising infection rates and human behavior, we see at the moment that stocking orders and supply chain risk occur due to these COVID-19 increasing infection rates. So far, we have everything under control, but we need to consider this in our guidance as this is a risk in front of us. So based on the solid year-to-date results and reflecting the bookings level of the third quarter and the market assumptions I just told you, we substantiate our annual guidance at the top end -- at the very top end. So our guidance for the year-end is EUR 165 million at 10% earnings before tax margin. This might sound a bit cautious to you, but we need to reflect the COVID risk, and we also need to reflect the lower bookings that we had in the third quarter that you can see, the EUR 36 million. And we have -- If bookings start to increase, there is a certain time delay until we see it in the billings, and there is also Christmas season upcoming for December. That is typically a weaker month for us because our customers -- all B2B customers that are managing also the -- their working capital and rather like to get the shipments in January than in December. However, I want to mention also that we are very confident that the bookings will pick up in Q4. And also that this will bring a positive momentum for the start of 2021. With regard to our 3 years outlook, our midterm guidance on Slide 19, we remain our midterm outlook stated on the Slide 19. So we work hard, and we are shooting after increasing the revenue of the company from the current, let's say, EUR 165 million this year towards EUR 250 million by end of 2023. Having this said, I'm at the end of my presentation, and we'll now open the Q&A session.