Landis+gyr Group (SIX Swiss: LAND) Q2 2027 Earnings Call

0:00 Welcome to the Landis and Gyr Half Year 2026 results presentation. Please note that the call will be recorded. During today's call, webcast participants will be in a listen-only mode until we conduct the session. If you wish to ask a question, we ask that you please use the raised hand function at the bottom of your Zoom screen. Further instructions will follow at the time of the Q&A. I would now like to turn the call over to Christian Waelti, Head of Investor Relations. Please go ahead.

0:31 Thank you, operator, and good afternoon, good evening, everyone. I'm Christian Waelti, head of investor relations, and I'm joined today by Peter Mainz, our CEO, and by Davinder Athwal, our CFO. Today, we will review Lens and Gears results for the second quarter and first half of fiscal year 2026. We will follow the structure of the presentation and conclude with Q&A. Before I hand it over, please take a moment to review the disclaimer on slide 2. Peter, over to you.

1:03 Thank you, Christian. Good afternoon and good evening, everyone. I'm here with Davinder, our chief financial officer, and we are pleased to provide you with an update on our first half performance. With that said, let's now start with a review of the strategic developments over the past months. Move to slide three. We made important strategic progress during the first half. We closed the EMEA divestiture in April and hosted our Capital Markets Day in New York in June. Introducing our new segment structure around connected platforms and grid intelligence and our midterm targets through fiscal 2028. We also strengthened the leadership team with seasoned executives, Rocky Martin for connected platform segment and Eugene Masso for grid intelligence. And our teams continued the preparations toward a potential US listing while retaining the Swiss listing as we aim to better align our capital markets presence with the majority of our operational business activity. In the first half, We also returned $162 million to shareholders through buyback and dividends.

2:17 Just this week, we concluded the share buyback ahead of schedule, repurchasing 10% of our share capital over the last 12 months, as promised with the announcement of the EMEA divestment in October 2025. Move on to slide 4. Let's start with the highlight of the week. On Monday, we announced a $509 million contract with a major U.S. investor-owned utility. The timing of large project awards like this is inherently difficult to predict. And while we would, of course, have welcomed the award in the first half, what matters most is that we are winning significant business, demonstrating customers' confidence in Landes & Gyr and, in particular, in our leading grid edge technology. Our order backlog stood at $3.7 billion on September 30th and as of now surpassed $4.2 billion, reaching another record level. This validates the record pipeline we previously discussed and shows its continued conversion through order intake into backlog. Turning to our first half performance, net revenue of $501.4 million was in line with our expectations and driven by project transitioning timing as guided earlier in the year in May.

3:36 Adjusted gross profit was $189.2 million and the trusted gross margin reached a record 37.7% driven by operating Adjusted EBITDA also grew and was $73.9 million, representing a margin of 14.7%, a significant improvement over previous year. Operating cash flow was $74 million, up 220% year-over-year, while diluted EPS from continued operations was $1.84, up 263%. With our first half performance progressing exactly in line with the anticipated revenue profile, we're confirming our midterm revenue guidance for the year while also narrowing fiscal year 2026 guidance range. In light of our first half performance and the strength of our order backlog, We are also raising our adjusted EBITDA margin guidance.

4:37 With that, I'll hand it over to Davinder for the financial details. Let's move to slide five. Thanks, Peter.

4:44 Hello, everyone, and thanks for joining us today. In my remarks today, I'll be covering order entry and backlog, The results of operations for the second quarter and first half of fiscal year 2026, as well as liquidity and leverage. Starting with order intake and backlog on slide 5. First half order intake was $337 million, including $221 million in connected platforms and $116 million in grid intelligence. Following the September close, we secured a $509 million contract award in October. Including that award, Order intake for the year-to-date period was $846 million, or 42% above the first half of the fiscal 2026 comparison shown in the presentation. Backlog at September 30th was $3.7 billion, comprising $2.1 billion in connected platforms and $1.6 billion in grid intelligence.

5:38 Including the October award, backlog would have been approximately $4.2 billion, or 6% above September 30th, 2025. As Peter mentioned, we continue to see strong pipeline activity, which has reached record levels. Turning to our second quarter results on slide 6. Order intake was $170.3 million, and the trailing 12-month book-to-bill ratio was 0.8 times. Revenue was $269.2 million, down 6% year-over-year as expected due to deployment timing. Importantly, profitability continued to improve. Adjusted growth margin reach 38%, up 460 basis points from the prior year quarter, driving adjusted growth profit 6.8% higher despite the decline in revenue. The improvement reflects continued operational efficiencies and a favorable product mix within connected platforms.

6:30 Looking now at our first half results on slide 7. For the first half, revenue was $501.4 million, down 6.3% from $535.3 million in the prior year period. Despite the lower revenue, adjusted growth margin increased 370 basis points to 37.7%, driving adjusted growth profit up 4%. That improvement also carried through to EBITDA. Adjusted EBITDA margin increased 140 basis points to 14.7%, with adjusted EBITDA increasing 3.5% to $73.9 million. So while revenue was lower in the first half, the underlying profitability of the business improved meaningfully. Looking now at segment performance and starting with connected platforms on slide 8.

7:17 Order intake was $220.9 million with trading 12-month book-to-bill ratio of 0.6 times. Revenue was $363.7 million, down 9.3%, primarily reflecting the timing of project deployments. At the same time, adjusted gross margin improved significantly, increasing 810 basis points to 36.9%, driven by operational efficiencies and a favorable customer mix. Moving on to Slide 9 and Grid Intelligence. Order intake was $116.4 million, with trading 12-month book-to-bill ratio of 0.8 times. Revenue increased 2.6% to $137.7 million, driven primarily by the growing installed base of Revelo. Annual recurring revenue reached $223 million, representing 8% annualized growth.

8:07 Adjusted growth margin was 40%, down 600 basis points, primarily reflecting one-time revenue mix effects in the second quarter. Finally, let's take a look at cash flow, net debt, and leverage on slide 10. We started the fiscal year with net debt of $198.9 million and leverage of 0.9 times the trading 12-month adjusted EBITDA. During the first half, we generated $74 million of operating cash flow and invested $13.7 million in capital expenditures. We also returned $162.7 million to shareholders, comprising $41.5 million of dividends and $121.2 million of share repurchases. Net proceeds from the EMEA divestment were $97.5 million, while other net changes were $54.3 million.

8:57 As a result, net debt at September 30th was $258.1 million with leverage of 1.5 times. As a reminder, the leverage calculation continues to include adjusted EBITDA from divested EMEA business. That concludes my prepared remarks. Thank you again for joining us today and for your continued interest in Landis and Gyr. I'll now hand it back to Peter to take you through our fiscal 2026 guidance and mid-term targets.

9:20 Thank you, Davinder. And let's move on to slide 11. Based on our solid first half performance, we are narrowing fiscal 2026 net revenue guidance to $1.085 to $1.115 billion, from the previous range of $1.075 to $1.125 billion. The midpoint of the range remains unchanged at $1.1 billion. Supported by the ramp-up of large contracts, we see a significant acceleration in revenue in the second half. Based on the continued progress in operating efficiency, we are raising our fiscal 2026 adjusted EBITDA margin guidance to 15% to 16% from previously 14.5 to 15.5%. Moving to slide 12.

10:09 As a reminder, our mid-term targets through fiscal 2028 remain unchanged and as presented at the Capital Markets Day back in June. From fiscal 2025 through fiscal 2028, we target the mid single-digit revenue CAGR and a Group Gross Margin of approximately 35% or higher. We target adjusted EBITDA CAGR at 2x revenue CAGR and adjusted EPS CAGR at more than 5x revenue CAGR. This concludes my prepared remarks and we are now very happy to answer your questions. Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raised hand function at the bottom of your Zoom screen. When it is your turn to ask a question, you will receive a prompt.

11:00 Please accept and once called upon, you may unmute and proceed. If you want to withdraw your question, please lower your hand using the raised hand function. Our first question comes from Akash Guptar at JP Morgan. Akash, you may now unmute your line and ask your question. Thank you.

11:18 Yes, hi, good evening and thanks for your time. I've got a few and I'll ask one at a time. My first one is on pipeline for orders and large ones, especially after booking this exceptionally large order early in the week. and we have still five more months to go in current fiscal year. And again, I appreciate these large orders are quite lumpy, but maybe if you have to assign a likelihood of probability, I mean, I'm curious to hear your thoughts on how does the pipeline look like and could we see something more in the remaining course of the year or you expect more in the next fiscal year?

12:01 Akash, thank you. Obviously, as we tried to explain, some of those large, especially large orders are very difficult to predict at what time they come, but we still, no matter what, we really like them. But when you look at the order intake of the $509 million and what we had achieved in the first half, Assume that we're clearly on the path to have a book-to-bill ratio for the year that is substantially in excess of one. And consistently what I said after the first quarter at the end of July, we continue to look at the record pipeline. and what I really liked about this win it's not just talking about a record pipeline it's about orders coming out of the record pipeline going into our backlog so I really look at that as a validation and the record pipeline that we are looking at this is still in place and there is still a tremendous amount of activity that really validates I think the tailwinds that we're finally seeing in our industry.

13:06 And maybe just to follow up on this order, are you going to book it entirely in connected platforms or it will be split between the two segments just for housekeeping purposes to put that into our numbers?

13:21 Like every order, it will be split in both segments. This specific one has probably not the percentage ratio of great intelligence as some of the other orders, but it will go in the backlog for both segments.

13:37 Thank you and my second one is on input cost dynamics and I think it is a bit encouraging you are raising guidance at a time when we hear some concern in the market on input cost and also some potential supply chain bottlenecks given The big AI investments creating bottleneck for other industries. So maybe if you can talk about what do you see on raw materials supply chain and input costs? And when we look at this margin upgrade today, where is it coming from compared to your prior expectation?

14:13 So obviously a big driver for us when we give guidance for six months, all of that is in our backlog. So we have very good visibility on the profitability over the next six months. So that is really the driver for increasing our guidance to be very clear here. Obviously, when you look at our great intelligence product, it is really a product that contains a memory and then contains processing power. And those components have gone up over the past and some of those costs in the second half starts to hit. And like every other industry, we've been working diligently from the month of April, the beginning of our fiscal year, when we understood that this was coming, that we need to continue to work with customers and increase our prices to get compensated for the value increase that is coming from memory chips and coming from processing costs as well.

15:11 You also had a point on the availability of parts and comments. I can clearly say that the people in supply chain, they had to work more diligently and providing the supply in the first six months. So it didn't impact us with any issues in the first half. I expect them to continue to work diligently in the second half, but we have really good visibility on what we're executing in the second half to have that available.

15:49 Thank you. And the last one is just more on the phasing of revenues in second half. So again, if you look at implied second half revenues, you're guiding for $600 million in second half, which is down 5% year on year. Maybe any commentary between Q3 and Q4, the phasing of this revenue? Should we expect Q4 to be more like Flatish and Q3 down given the phasing effect or do you expect similar growth in Q3, Q4? Thank you.

16:25 So I think the pattern you described is actually the pattern we laid out at the very beginning of the year. We said we were transitioning to a contract in Canada. The transitioning is starting in this quarter, Q3, and in the fourth quarter it will ramp up to a full deployment scale. So what you have laid out is very consistent how we depicted the revenue profile throughout the year. And obviously also Q3 is always the shortest quarter in any given year. but that profile matches with what we've laid out and with our expectations.

16:59 So you mean similar 5% decline in Q3Q4 revenues?

17:03 Sorry, you depicted two different profiles. I'm referring to the first one.

17:09 Okay, thank you. Thank you. Our next question comes from Patrick Rafaich at UBS. You may now unmute your line and ask your question. Thank you.

17:25 Thanks and hi everybody. Two or three questions from me as well. The first one would be sort of a follow up specifically to the connected platforms and the strong margin performance there. You talked about operating efficiency and mix. I assume mix means more revenue, but can you maybe elaborate a bit and also give more color on these individual components, how much they contributed?

17:57 Sure. A couple of things. On the price increases hitting the first half results, price increases being on the components in the first half, that included very little of that. As I said, it's really starting to hit our P&L and hit our cost base in actually this quarter, beginning this quarter, middle of this quarter, and then in the fourth quarter. So that is what we see on the material cost side. What's the mix? On the mix side, I would probably more say, as we articulated on the Ribello, as you alluded, we are clearly going down the learning curve as this product was early on in the cost curve. We continue to go down this cost curve dramatically and perhaps a bit faster than we had anticipated.

18:49 It is an electronic product. Volume is the name of the game. And as it continues to replace other products, That continues to show also consistent on how we have anticipated it so that it continues to be a big driver for us. A new product early on in the cost down curve and we continue to execute on that curve and perhaps a bit faster than we anticipated at the beginning of the year.

19:17 Okay, great. And then the same question for For a grid intelligence, you mentioned here, I think, Davinder, you mentioned the one time mix effect here that impacted the gross profit margin. Can you explain that as well, please?

19:34 Hey Patrick, good to hear from you. Yeah, essentially I would think about it like this, Patrick. So this is an anomalous quarter, right, where we just happen to have a mix that's not representative of our typical business profile in that segment. So we saw that in this quarter, but we expect that to kind of normalize over the balance of the year.

19:56 Okay, so really an isolated quarterly event. Yeah, it's an anomaly, exactly.

20:05 And in our capital markets day we laid out the 50% cross-margin goal for that segment and we continue to remain on that journey to the 50% margin over the three-year period.

20:20 And then the third one would be when you talked about strategic You also mentioned the US listing. Can you update us maybe on what you think about the timeline here for going live?

20:42 I'd prefer to stay away from a timeline. As you know, you always need a market that is opportune to continue to do that, that it's in the best interest of every shareholder. But the preparation is progressing well, and I'd stay focused on progressing on the preparation for a listing in the US.

21:01 Okay. Okay, good. Understood. And then I'll just slip in a last one. I realize, right, with the large order win, You're ahead of last year and you already said book to build will be well above one. But still wondering on the strong decline year on year in orders. Is there anything we have to read into on the base business or the recurring business? Or is that also just quarterly volatility?

21:34 There is a bit volatility again in a very short quarter. Those couple of hundred million dollar deals that can impact it one way or the other. And three weeks after close of the month, the picture looked completely different. So that is a bit the nature of the business. This is great news, regardless if it's three weeks earlier or three weeks later. This is just, you know, Quite great news. We like it. That's the volatility we are used to, if you want to call it volatility. That's why we look at order intake on a longer period of time than a quarter. So that is, there's nothing but good news in that one.

22:12 Okay, understood. I'll go back into the line. Thanks. Thank you. Our next question comes from Sean Milligan at Needham & Co. Sean, you may now unmute your line and ask your question. Thank you.

22:25 Thanks for taking the questions. First, I wanted to focus on the gas meter side. I'd like to get your perspective on where ultrasonic gas meter penetration stands today and sort of how you see that market evolving over the next one to two years for you.

22:43 So, Sean, thank you for the question. So gas is for us an excellent opportunity that we have entered a couple of years ago. also with our ultrasonic gas meter offering and again as a reminder nobody has sold more ultrasonic gas meters than we have and we've done that predominantly in Europe but we transitioned that offering now over to the US. We had already served gas utilities in particular in the shape of combination utilities, electric and gas Thank you very much. Energy Resource and now it's really a destination energy resource and we have seen a resurgence in investment in gas and also on the gas side so we quite like where we are positioned and certainly from our starting point we're quite excited where we can go in the in the gas business in North America and as a reminder in some of the APAC regions where we participate we are already and continue to be a leading player in gas there already today

24:14 Okay, thank you, Peter. And then on the grid intelligence side, so as you continue scaling the connected device space, how should investors think about recurring revenue software per endpoint? Is that a good metric to use? Is that increasing? Is that going to increase over the next couple of years? Or is it more about just growing the number of connected endpoints for you to drive grid intelligence higher?

24:42 So it's a combination of the both. Obviously, that's why we are running so fast to get Revellos into the ground, because they're the basic foundation of the growth for grid intelligence. But then obviously, once that platform is in the ground, we also want to increase the value per endpoint. And particularly, if you think about the duration of our contracts, 10, 15 years, if we have the platform in place, that should be the second lever platform in place. Deploy grid intelligence and then grow also the value per endpoint around grid intelligence.

25:17 But we're still relatively early in the like grid intelligence revenue opportunity per endpoint. Is that the right way to think about it? Like it's still very early innings in that regard?

25:30 I think we We make very nice revenue on the number of endpoints that we have deployed already today. I think we have well in excess. When I just stay with the Revelo product, we have well in excess of 5 million of those deployed and delivering value today. That carries a substantial amount of great intelligence recurring revenue as we speak. So I would say a big driver for that to see it in our numbers is still converting the 15 million units of Revelo continue to This concludes the Q&A session. I would now like to hand back to management for closing remarks. Thank you again for joining us today. Very much appreciate the time and interest in Lansing Gear. Look forward to meeting all of you soon, either virtually or in person.

26:44 Goodbye and have a great day. Thank you. This concludes today's call. Thank you everyone for joining. You may now disconnect.