VAT Group (SIX Swiss: VACN) Q1 2026 Earnings Call

0:00 Ladies and gentlemen, welcome to the VAT Q1 twenty twenty six Trading Update Conference Call. I am Valentina, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Urs Gambler, CEO. Please go ahead. Thank you. Ladies and gentlemen, thank you, Mr. Hernan, and welcome to VSP's Q1 twenty twenty six Trading Update Conference Call.

0:47 With me this morning are Fabian Fiorza, CFO and Christopher Wickley from our IR team. After my introductory remarks, we will start a moderated Q and A session. We are pleased to connect with you again after our full year results in March and the following roadshow. A lot has happened around the world since then, but the one thing that has not changed and I can reconfirm today, the rest is here. We are seeing very strong demand for products, from our customers across the sales and marketing industry. Q1 orders of CHF356 million represents a 17% increase in the previous quarter on the previous quarter and full 47% increase on the same quarter last year.

1:38 This is the second highest order intake that VAT has ever recorded. At constant currencies, orders would have been up 19% sequentially and up 67% year on year. The conflict in The Middle East has been a big topic in the past weeks and we have not been completely immune to it. While we do not source components or commodities from the region, its important position in global shipping, including airfreight, temporarily challenged our activities. We shared these challenges and their impact already in our short press release on March 31. Overall, we achieved Q1 sales of CHF221 million.

2:27 This means sales were down about 14% quarter on quarter and down about 20% year on year. On a constant currency basis, sales would have been down 13% sequentially and 9% year on year. The resulting book to bill ratio amounted to around 1.6x and our order book increased by 42% to CHF431 compared to the end of twenty twenty five. The Q1 sales impact due to the disruption in the supply chain amounted to roughly CHF20 million. Let me provide you with some additional color on it. We had both our own components and components from our suppliers blocked in transit in the region for a limited period at the beginning of the conflict.

3:21 As mentioned before, we do not source materials or components directly from the region. So the main challenge was to figure out where exactly our goods are located and then to find ways to get these components to our factories. As the globalized supply chain semiconductors works with tight schedules and just in time deliveries, already small and unforeseen disruptions can have a meaningful negative impact in the short term. This Q1 situation was a logistics challenge, but not in any form a sign that the ramp is in danger. All orders placed for shipping in Q1 that got delayed will be manufactured and delivered in Q2. As a result, we do at this stage not expect any negative impact on our full year results from these disruptions, barring any further escalation of the conflict, which we hope will not be the case.

4:22 Within our business units, advanced industrials, continued to see good demand for semi related end markets such as metrology or inspection tools, but other project related businesses remained subdued. Global service saw a slowdown quarter on quarter following some restocking in Q4, but overall orders are higher on a year on year basis. The high utilization rate in the past will further fuel the global service business in 2026. Over the past weeks, we have been very closely engaged with all our major semi customers, and everyone agreed on the strength of the current brand. Wafer equipment spending is estimated to amount to approximately USD 130,000,000,000 to 135,000,000,000 in 2026, and in 2027, this is expected to increase even beyond USD 150,000,000,000.

5:21 This wafer fab equipment spending is a result of the build out for the artificial intelligence infrastructure, especially driven by the hyperscalers. Consensus expected to over $750,000,000,000 this year. The overall value of the semiconductor sales might even exceed the US1 trillion dollars mark in 2026, which is certainly driven by higher average sales prices, but also reflects the increase of units produced. So thinking about the next quarters, we expect that the market is continuing its structural growth phase with demand for advanced logic and memory chips outpacing the industry's ability to provide supply.

6:10 One of the 10 semiconductor fabs are currently planned or under construction or completion in the coming two to three years. But the very steep brand environment is also tricky as challenges can emerge from unexpected geopolitical events and their impact on the supply chain. Our globally diversified manufacturing footprint and its flexible operating model provides a good level of resilience. The rent environment we are in requires acute adjustment of the staffing levels, and we are in the process to hire over four fifty colleagues globally to support this trend. We have discussed this with you in the past. Our FLEX model is capable to increase our factory output by 20% to 30% quarter over quarter.

7:02 Our operation at full capacity in the second half of twenty twenty six. On this basis, we confirm the guidance provided at the full year results presentation in March, and we expect full year 2026 orders, sales, EBITDA and EBITDA margin to be higher than in 2025. Net income and free cash flow are also expected to be higher in 2026. The coming quarters will continue to be in ramp mode. For the second quarter of this year, we expect sales between CHF265 million and CHF295 million. This concludes my prepared remarks and we are now turning the call back to the operator for the Q and A session.

7:51 Operator, please. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. The first question comes from Yang Mi Yan from Goldman Sachs. Please go ahead. Hi, good morning. Thank you for taking my question. I'm just having a question on the capacity ramp up in the second half. So previously, you have mentioned that you could ramp up 30% quarter on quarter. But if we look at the sort of historical pattern, the second half versus first half sales delivery has sort of been maximum 20%, whereas now consensus is implying you could ramp up about 50% in second half versus first half on a sales if we take midpoint of your 2Q guidance.

8:53 You think this is achievable according to your current ramping up plan? And I'll ask for a follow-up. Thank you. Yes, thanks for that question. Yes, we are very confident that we can ramp up the 20 to 30% in factory output. And then, of course, there is the lag in sales. So we have done all measures already started in Q1 and continue to do that now in Q2 to achieve the 20% to 30% ramp up quarter over quarter. Got it. And my second question is do you see any signs of double ordering from your discussion with your major customers? And on the second quarter book to bill, do you expect it to slightly normalize versus the first half as the sales ramp up?

9:44 If you could give us a bit more color would be helpful. Thank you. Yeah. Well, of course, at the moment, the whole industry is in a ramp, but there is no way that everybody has its own capacity, right, and you have to fill the pipeline that you can deliver what your customer is needed. So it's not about an opening. Of course, you are securing your supply chain. That's also normal behavior, but everybody has also its own capacity and has to build up the capacity as well. So it's very important that the whole supply chain stays very close to each other, discounting, and in the end, this is a B2B business, and you have to be very close, and they don't want to overstock stock as well.

10:38 Got it. And the book to bill in second quarter comment? Book to bill, I think you have seen we have a wonderful book to bill in Q1 and for Q2, we expect that it also will remain well above one. Okay, got it. Thank you. The next question comes from Daniel Chaffet from Citi. Please go ahead. Hi, good morning. Thank you for taking my question. So the first one my side would be basically just would be great if you could bridge the sales number that you've guided now for 2Q from your current backlog. Obviously, there we have this deferred component of let's say $40,000,000 but what are some other effects that hinder this translation from the $360,000,000 to $280,000,000 Because for example, you've mentioned before that lead times are eight to twelve weeks.

11:36 I'm just wondering is that now longer because given demand is ramping up and people are trying to kind of order more and that's why you have to extend your lead times? Or are there some other factors? You. I'm Ian. It's thanks for that question about growth. I think the total is stating of the revenue, right? Once you produce it and you have a factory output, kind of then you deliver that, and that is kind of like a phasing of the revenue generation. So that's why capacity increase is certainly the main focus now for us. Yes, and we have roughly about 10%. It's always kind of in transit, right? We're shipping it from Malaysia, from Switzerland to our customer sites.

12:28 Okay. Thank you. And then also, would you be able to split the semi order that you have now into maybe something like leading edge HPM from China? Would that be or I know it's difficult for you to differentiate between the technologies, but at least could you give us maybe some color where you feel the split is specifically China because is it still accelerating or do you see some customers being now more worried around the potential match act enforcement? Yes, last year China was roughly 30% to 35% of our sales, right? And China is still off. We just had selling from China in March, and so we could meet all our main customers there.

13:16 Q1 was a little bit lower, roughly 25%, maybe 25% to 30%, but it's also due to their holiday as well, so in China. But overall, the number will be around the 30% overall. That's just what we expect. It always depends on the Western world. The Chinese, they are ramping faster, and it can be a little bit lower. But overall, the Chinese market is still growing for us because even though the wafer fab equipment does not grow a lot in China, the local wafer fab equipment manufacturers, they will gain share, and we are working closely with them, and we will have efforts from that situation.

14:03 Perfect. Thank you very much. The next question comes from Martin Jungfleisch from BNP Paribas. Please go ahead. Yes. Hi. Good morning. Thanks for letting me on. I have two questions, please. The first one is really just a follow-up on the first question. You have a total capacity of around 2,300,000,000 in sales across the Suez and elimination fabs. Can you just disclose your current utilization rates or production capability of that and your maximum quarterly sales also based on that? So for example, could you potentially reach a quarterly sales output volume of around maybe $400,000,000 by year end? And going back to the question that consensus is looking at almost $1,300,000,000 in sales this year, so this would be around $380,000,000 on average in sales in the second half per quarter. Is that kind of achievable with your views? Thank you.

14:54 Yes, thanks for that question. Our current utilization rate in Switzerland is roughly 65% and in Malaysia, we're at 18% level, so showing that, of course, semiconductor business is accelerating more also in Malaysia. This is based on all our relocation and efforts we have done in the past years as well. And yes, our clear target is now with 20% to 30% quarter over quarter increase that we come to a run rate of $304,100,000,000 dollars in the second half. Great. Thank you. And the second question is also maybe a bit of a follow-up on the order momentum. I mean, in the media release just now, you said that you expect the book to go well above one.

15:43 I know it's early in the quarter, but would you expect orders to increase consecutively in Q2 versus the Q1 and maybe also bit more further out in Q3 versus Q2 and so on? So it's like a consecutive increase that you're seeing from here? Yes, of course. I would expect that order is slightly higher, but it's not a big chance anymore. I think now that the whole supply chain has to digest as well. So we have to be around the ramp and at a certain point, it's more a constant than what the order and sales and deliveries are more in balance. Now we have typical brands that that's why we have this 1.6 x in Q1 and certainly beyond one in Q2, and then it will level out once the capacity in the whole supply chain is kind of in balance.

16:42 But we also expect that the service can go up as well. This can have a positive impact and also in the second half of the year. Cool. That sounds good. Thank you very much. The next question comes from Craig Abbott from Kepler Cheuvreux. Please go ahead. Yes, hi, good morning. Also from my side. First question please. I know obviously, you know, in this Q1 call you don't report, you know, EPA for the quarter. But I just wondered as we're heading toward the midyear point, if there's anything you could flag that we should be thinking about on the margin progression in the first half. I'm thinking about things like potential feed through of the higher oil prices on the material cost side, aluminum, things like that, plus maybe things like the ramp up you were talking about in terms of the four fifty new hours or so. So any indication you'd give me on the margin progression would be very helpful. And then I have a follow-up.

17:42 Thank you. Yes, morning, Craig. This is Fabian speaking. Let me give you some additional color on the expectations regarding the margin. Look, we do not expect any material adverse effects out of the situation in The Middle East and its consequences. Most of our main commodities are hedged well through the first half and as such, I do not see that as a negative on margin. What we certainly do have is a bit of freight cost increases here and there, but overall freight costs are not material to VAT, so I would also not expect this to have a material effect on H1.

18:39 On the other hand, with the ramp now happening in our factories, we will see kind of a reversal of the inventory effect in the first half. So there, I would expect that we can have positive contribution to the bottom line margin from additional inventories and overall we are on a trajectory towards the midpoint of our communicated margin band for the full year, I would say a first step will be accomplished in the first half. Okay, that's very helpful. Thank you. My second question is basically for the most part already been answered and talking about the ramp of the capacity on a quarterly rate going forward.

19:33 But again, just kind of like to follow-up on that, I mean, like the order conversion rate into cells, I mean, can we expect that to like be speeding up in the next couple of quarters? Yes, technically so. We are now increasing capacity and speeding up kind of also this conversion. So the last year, the lead time for our customers and our products has been reduced and now, of course, is the ramp. We have to catch up now with capacity and play in the meantime to market expected level. Okay, thank you. Okay, and any your my last question, sorry, any your reviews for, at this stage, already heading into the first half of 'twenty seven?

20:26 2027, our expectation still is that we can just also confirm what our customers see and what is published everywhere that 2027 again will be a close year, so and certainly a record year 2027. This is how we see that, how we prepare our capacity at the moment in this midterm horizon. Okay. So no risk of like an overhang of capacity heading into the report next year. Okay, thank you very much. Thank you. The next question comes from Johan Effert from UBS. Please go ahead. Good morning and thanks for taking my questions.

21:15 And the first one is, please, to double click on the capacity. I think you mentioned you should have a quarterly sales capacity of at least $400,000,000 coming through in the second half. But may I also double check, I mean, as you have outsourced around 70% of your component production, I mean, are your sub suppliers also ready to ramp this? Do you have some good visibility here that this will not be a bottleneck? This would be the first question, please. And the second question on China. You said, I think, the China share of local OEMs was going down to 20%, 25% in the order intake in Q1. On average, you should expect to 30%. It's not so easy to get the data, but did you get insight that their twelve month inventory was coming down, that they're normalizing it somewhat?

22:06 So any color there would be appreciated. Let's start with China again. Overall, of course, if you go to China, you really see a few of the heat in China. They are building up their own ecosystem. At the moment, they are less interested in any stocking inventories. They want technology. They want to bring up and be capable to produce leading edge chips on the seven nanometer, five nanometer. That's the drive. They want to have all the processes produced and manufacturers of their soil, and that's the main drive in China at the moment. Your question is implying more commercial optimization, that will follow afterwards.

22:56 At the moment, it's really a battle and race. Who will win the different process steps China. I think that's certainly still ongoing. And just as we have now a little bit lower sales in China in percentage in Q1, it is just also a seasonal effect that I mentioned. Was a Chinese New Year and everything ongoing. But overall, the OEMs in China, they will win share. So their share was pretty low. Their sales efficiency rate is in the range of 20% only, and they want to increase it to the 70%. And this is what I always say, this is the opportunity we have to grow in China, just to grow with them and think they will increase the self sufficiency rate.

23:50 Second question is about capacity. Yes, of course, we have maybe three main areas we are following. That's our workforce in assembly, ramping up there, our own workforce in machining as well as producing our own parts, but as you know, there's only 25%, and we have the 75% in the supply chain. And of course, since the last ramp, we did our homework, and for most of the components we had second sources well. So we cannot only rely on one source, and this gives us much more flexibility. Everybody has to ramp up, that's certainly true.

24:35 Everybody needs some time to ramp up. I think I mentioned even during the roadshow sometimes, it's like this lantern that was idle for a year and then you start the bathroom and there is some smoke and noise at the beginning until it turns smoothly. And this is now the phase, I think it's the ramp up phase for us, but also for the suppliers, but also for our customers. So that's the whole industry, the whole value chain working on that. So I think I feel very comfortable for many of the critical suppliers, like in electronics, like in elastomers, we have set the sources. Thank you. Thank you. Okay. The next question comes from Deshpande Sandip from JPMorgan.

25:23 Please go ahead. Yes, hi. Thanks for letting me on. My first question is regarding your ramp up of your sales. I mean, is a follow-up to one of the earlier questions as well. I mean, historically, your lead times from the orders to the sales are much shorter. You've seen very strong orders, but the sales is somewhat lagging. Is this because of where we are in the cycle that things are just recovering? Or it is because associated with customers that things are much more second half loaded? Or is it something to do with VAT's own supply chains, which are taking time to ramp up? Yes, think you gave the answer already. I think it's really just a ramp up as well that everybody is now building up the capacity from, let's say, 50% to 60% utilization.

26:11 Everybody has to staff facilities to ramp up and needs some time. And even if you would deliver everything that was booked, our customers could also not digest it, right? So that's why it's also good in a ramp that the forecasting becomes better than earlier times as well. So it's also scheduled to other to the Q3, some of our order intake. So I think we have a very good order book and visibility now for Q2. I'm going to execute that, and still, the order inflow is very, very healthy. That's why we are very comfortable and planning to ramp up also in Q3 and Q4 to ramp up in Q3 and Q4.

27:05 I mean, in following up to that, I mean, your orders are very strong. Would we expect to see maybe your orders translate directly to whatever your bookings are into sales in Q3 or Q4 because that would substantially lift your sales number in the second half of the year? That's correct. So we expect that now with our forecast in the first half year, we will end up with about $500,000,000 right, and we still are very comfortable with the overall content close to the 1.3. So this will be a lot here an increase in the second half of 50% to 60%, let's say.

27:52 Understood. Thank you so much. The next question comes from Michael Ford from Vontobel. Please go ahead. Yes. Hi, good morning gentlemen. Two questions from my side. The first one is in your Q1 sales impact that you mentioned, the CHF 20,000,000 to CHF 25,000,000, you initially said there were some one of the reasons was also changes in customer specifications. Could you be a bit more specific what that refers to? That would be the first question. And the second question is, you said order intake was up 67% in constant currencies and 47% reported terms. That's a 20% differential due to FX, whereas in sales, you only have 10% differential.

28:40 Can you explain you know, what the FX mix in there or what is what's going on in that differential there, please? Thank you. Thanks, Michael. Let me take the first part of your question. Impact of the 20,000,000 on that configuration, that was in such a way for those our customers have to optimize which configuration, which tool they can deliver. And then certainly, there is a higher activity in pulling or push out for certain orders. And then in a second at the end of the quarter, of course, this can have quite an impact then also on that. But it's a typical situation, especially if a ramp is coming or if it's slowing down dramatically, then we see more pulling up push out activities also from our customer side where we have to react.

29:44 And this also led to partially to this €20,000,000 delayed sales recognition. And on the second question, Michael, this is purely a mixed topic. So whenever these orders and sales have been received and then translated at the respective epics and also remember that in Q1 twenty twenty five we had quite a huge volatility which was not the case this year. Okay, thank you. The next question comes from Marti Malandonkarian from ODHF. Please go ahead. Hi, thanks for taking my question.

30:33 My first question is on the WAC. I mean, I think you kept your assumption of the WAC to get $130,000,000,000 this year, which would imply growth of around 13%. And I think most of your customers have talked about 20 now growth. So is there a reason why you kept the same forecast? And also is your expectation to continue to beat the WAC growth by five seven points of growth through '26, 27 as you highlighted at the last year? And I have a quick follow-up. Yes. With the growth, of course, it's always also where we start, where is the base and the different models, They don't have the same number also historically.

31:19 So that's certainly a starting point. It's important. Think we feel comfortable at the moment. It's 130,135, if it's more. So we are happy to do that. I think it's the growth we calculate at the moment is 30% to 50%. Also considering at the moment, because I hope everybody has to ramp up, right, and then you see that in theory, demand might be even higher, but there might also be delayed because of the constraint in the whole supply chain. Okay, clear. Thank you. And about the expectation to beat the WFE growth by five to seven points, so '26, 27, do you think that's still a valid scenario?

32:14 Yes, that's still a valid scenario. But we our ambition is always that we want to outgrow by 2x, and I think what is now up to two x. Yeah. So at the moment, you'll see a lot of orders going in the EDGE as well, EDGE fabs, and we have our higher share of wallet on the equipment. Okay. Thank you very much. And the last question for me is on EUV. You know, EUV lithography is going quite fast, especially versus EUV. So my question is how material is it in the order intake momentum?

33:00 And do you see actually lithography related orders are going faster than other orders? And lithography, you know, historically, it was it was not a big business because the legacy machines, they don't need vacuum. And now with the UV, that one is a very interesting business for for years as well. But also here, there is just a limited amount of machines going into the market compared to action and precision machines. And here, can see probably also the relation of what it means for VAT. So it is a very interesting, important pillar for us, but of course, the depth and edge are still dominant.

33:53 Okay. Thank you. The next question comes from Nabil Azid from Rothschild and Co. Redburn. Please go ahead. Hey. Thanks for taking my question. Just a follow-up on the disclosure at the March 31 prelim announcement on reconfigured orders. I was just wondering, is there any color that you can provide in terms of whether it's related to certain deposition technologies or etch technologies that have been reconfigured or whether there's a difference in the impacts between memory and and between logic? And I've got a quick follow-up. I think it was just through the band. And, yeah, you can imagine, if a new factory, a new fab is equipped, they need everything, right? They need depth, edge lithography and all the other process steps as well.

34:45 It's more kind of which customers win, which part of that and then it's reconfiguration and optimization that takes place. Or if they if you talk about push outs, then maybe they are certain that they are delayed and don't want to take the products yet and if they are for cooling, then they want something and have to accelerate something. But this is a dynamic in the industry. It's not related on a specific device. It's more than a customer level and dynamic to increase the best. Okay. Sure. Very clear. Then I guess in terms of your order intake, I know you mentioned growth through the year or modest growth in the three fifty that you disclosed at 1Q.

35:39 Is there anything through this year that would point to that you would point to in terms of customer build plans, fab build plans that would mean that order intake may not grow through the year and whether there's anything seasonally that you would expect or call out from a demand perspective? You. Well, maybe just to you what we hear and what we hear from our customers and what also what we really have out there that hyperscalers are investing, the 110 fabs that get online, wafer fab equipment will be needed $10,000,000,000 to $20,000,000,000 for each fab. In total, it's going up, we say, beyond 150, some say 170.

36:26 So this kind of indicates that we will see continuous growth as well in order intake. If you don't see that, then maybe also something in the fab utilization or fab completion is delayed. There is a question, are there enough out there? That's nothing to do with us, but that's kind of just infrastructure. It's infrastructure ready to digest all the data fabricate. At the moment, it's heavily driven by DRAM and logic. And then in the coming 2027 class, we can also expect that even NAND will also have investment cycles again. So a very positive environment, very volatile as well, as you know the situation out there in the world.

37:17 But in semiconductors, certainly the long term trend is just going in one direction and that's growth. Great, thank you. The next question comes from Oliver Wong from Bank of America. Please go ahead. Yes, good morning. Thanks for taking my question. Wanted to go back to the capacity ramp up, you know, would you say that you were kind of, surprised by the order intake, by the demand, hence you're not able to kind of shift to the full demand in at least first few quarters of the year? And then also, you mentioned 25% kind of on your end, 25% supply chain.

38:05 On your end, assembly and machine workforce, I mean, do you expect that to kind of show up the most on the income statement? And then also, is there potential risk in the supply chain ramping to the timing that you expect to get in the new tranche of this past year? Let me address the second part of the question. So according to our flexible operating model, we are able to source staff when we need them and then also have them productive within a couple of weeks.

38:52 That said, the additional cost follows quite well. Also, the increase in volume and as such does not have a material lag effect on the P and L. In terms of the input factors, I just talked about workforce. We talked earlier on about scaling of supply chain, which is now in full swing. Fortunately, we do not see major constraints on important commodities such as electronics or aluminum for the time being, right?

39:38 And last but not least, the assets that we need in order to convert all these components into end products are also in place, so we do have sufficient machining capacity. We do have sufficient assembly capacity. It's just basically a matter of bringing the parts from the supply chain together with the increased workforce and then convert this into product. And as you can imagine, this is not an overnight exercise. It needs a couple of weeks and we are now seeing that at the end of Q1, which was unfortunate, but nevertheless now we are seeing daily increases of our output capacity and this is set to continue.

40:37 Thank you. That's helpful. But would you say that you were kind of somewhat surprised by the order intake and otherwise you would have sort of already let's say at the end of last year? Well, you know, we are hearing about the RAM from our customer engagements since almost about two years, right? We have been talking about it. It has always been pushed out, and obviously we didn't start to bring neither material nor manpower into the system as the orders didn't materialize. What we did do is wherever we have long lead times, this is on the break and mortar of the machines, etcetera.

41:29 We have invested ahead of the curve and this is now enabling us within a couple of weeks really to open the tap and now also increase our capacity according to the model and most of the promises that we have made. Thank you very much. The next question comes from Timothy Lee from Barclays. Please go ahead. Thanks for taking my questions. So my first question is, again, the just to wrap up and also the guidance. So in your second quarter guidance, is kind of any further percent impact from the splash in or, let's say, the customer complication Tim Tim. Tim, sorry.

42:17 Tim, sorry. It's you're very difficult to understand. Can you can you find a different way to speak to the microphone? You're you're almost a different Can you hear now? Close to five. No, don't think it's much better. No, it isn't. Yes, sorry about that. Yes. Question is about the guidance configuration Sorry, you're inaudible. Let's take this up bilaterally. I'm sorry about that. It's very difficult to understand you.

43:04 I appreciate you're also the last person asking a question. Going to speak after this call directly and I'll hand back over here to the operator please to conclude this call please. Tina, over to you. Thank you. Ladies and gentlemen, this concludes today's call. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.