HMS Networks Q2 2026 Earnings Call | Net Sales Approach 1B SEK on 59% EBITA Profit Surge

Welcome to the HMS Networks Q2 presentation for 2026. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to CEO Staffan Dahlström and CFO Joakim Nideborn. Please go ahead.

All right. Thanks a lot, Stefan. Welcome to go on with the ordering intake and as you've seen, as Stefan also talked about, we see a little bit of a change compared to Q1 that we are not really seeing these pre-orders anymore, these long orders. Customers placing deliveries throughout the year. And we talked about in Q1 that we had about 130 million SEK for these long orders. If you adjust for that, I think we're just seeing the same pace more or less that we were seeing in the first quarter as well. And then good solid growth here, 15% growth in Q2 and 12% year-to-date on the organic side. We actually see a lot of good demand, pretty broad on all our markets going well. What's a little bit surprising, very positive, is that APAC is leading out the growth, 35%, and also MEA going quite well with 15%. Now, of course, the comparable Q2 2025 wasn't our best quarter, so it's in one way a simple comparable there. But it's good also to see that APAC and MEA is showing the way on the order side. On the division side, we have to note that the INT division is continuing to perform very well. We have now an organic growth of about 20% for four straight quarters. And I think we've been talking about this that it was expected that we were going to see a re-rebound in 19. At least Stefan and I have been mistaken a little bit on the timing. We thought we would see this more in 2025, a bit earlier, but now we're seeing it for some time that we are coming back strong in the INT division. And also Stefan mentioned this as well that the main driver is data center investments throughout the value chain in different ways. We're coming in with our products, same products as we always sell, but with various new applications for us. And so that was a solid quarter on the order side. On the net sales side, very similar numbers, 991 million. So organic growth of some 12% here as well. And you see we're closing on the 1 billion mark, slowly but safely growing. Of course, the Q4 and Q1 solid order intake has been supporting our sales in Q2. We have, as you know, 2025 we didn't see the best growth in the first half and now we're back to double-digit growth for the third straight quarter here. So that's also good to see that it's coming back solid. Book-to-bill have three straight one. So I think that's pretty much what we can expect from the future as well, somewhere around 1.0 in book-to-bill.

And here it was a bit of a different mix on geographies. Americas coming in strong with a very good start of the year on the order side and the 28% organic growth in sales. Talking about the different divisions, I think starting with IDS, the largest division with 46% of the profits and the big gearing towards the American market. I think we're quite happy to see over time, you see the bottom graph, we added also the EBITDA margin history since the first quarter 2025 when we made this shift into the new divisions. And we see here that we have kind of established the business on a good operating margin level that is slightly above the 25% in the quarter, 27.5. And it's a pretty good lift from where we started out when we established this division in the beginning of 2025. So that's very good to see. Also here we have some product launches both within remote access and network switches. So that will be good important steps for the future growth up to 2030. The business plan we have with the strategy up to 2030, it will be key aspects of building that growth. Also here kind of broad-based demand, good development in all regions, nothing that sticks out. Good solid performance in IDS. Then we go to INT. You see a bit of a different development here on the order side compared to Q1 with this is where we had the majority of these pre-buying orders related to the Molex acquisition where some customers secured more or less the full year deliveries with orders in Q1. And I think we're quite happy to see that we get 38 million of orders for Molex in Q2. We didn't really expect that to be as good. On sales side, I think we've seen that more stable, that deliveries will pace out in time pretty much as we see here as what we expected at least. We must also mention that, again, we talked about the fourth consecutive quarter with over 20% growth in orders. And we're very happy with the development, obviously, in INT. Also here you see a strong development on the EBITDA margin, now above 30%, and we've been around that level now for three quarters. This is maybe where we've been seeing the largest demand from semiconductors and data center investments. And that has been driving gateway business for us. And you'll see that when we talk about the margin soon, that this is also one of the reasons the gross margin has been strong for us. Then we have new industries. Here we have also solid development with a 7% organic growth in orders, 11% on sales. Also here not meeting the best Q2, but it's solid business. We know that we're struggling in the end markets within the vehicle communication that is selling a lot into the automotive market, which is obviously not the best, especially not in Europe. I think that is somewhat met up from a good quarter from building automation business, despite the slowdown in the Middle East, which is a very important strategic market for the building automation business. So I think with everything going on in the world, if we can develop like this in this division, I think we need to be fairly happy. The margins is a bit of a smaller division, so margins can vary up and down and this quarter was a little bit softer, you see on the graph. It's been bumping up and down a little bit between quarters, so I think that's not really into much about that slightly lower profitability.

And then about the profitability then, so we do an EBITDA of 266 million, a new record result for us and 26.8% EBITDA margin, 27% year-to-date, so it's also good to see that we can achieve this level and our target of over 25. And maybe the main contributor, except for volume, is the pretty good gross margin of 63.8%, which came in a little bit stronger than what we expected ourselves here. And the comparable of 61.8 is towards the Q2 level last year, which was tough from the tariff situation. We saw pretty high tariff cost in the beginning where those tariff wars kind of escalated, especially between the US and China. Now the situation is much more stable and we have not yet got too many tariffs back. That is something we are working on at the moment and hope to be able to be successful with that. We'll come back to report on how that turns out. Otherwise, I mentioned also that the strong gateway business from INT that is supporting the margins here as well. That's maybe where we had a little bit of a positive surprise on the margin side. We know going forward, Stefan mentioned it as well that we see now continued longer lead times, especially on memories, but also some other components. And also price increases are starting to take off. We've been seeing some already in year-to-date. However, for us it's kind of been offset by having inventories. And going forward, we will not be able to supply by our inventory. We're dependent on new deliveries and then we will see a price increase that is coming. So I think we can have a bit of a margin pressure from this level in the second half. Nothing dramatic and we will of course monitor the situation and maybe do adjustments if it's needed. But I think we can expect a slightly lower gross margin for the second half.

And on the OPEX side we have been stepping up the investment pace a little bit both in R&D and in strengthening the organization overall. We see an organic increase of 9% and a bit of a step up as well compared to Q1. I think we have gotten in the most increase of the run rate so far this year. So I believe we will see something similar to this level going forward for the second half of the year as well. So I think the run rate in Q2 is probably quite representable of what we will see. As communicated before we have also increased R&D investments and you see that also in the capitalized R&D which is increasing a bit and now we're at 27 million in Q2, similar level as in Q1, and then similar expectations for the coming quarters as well. I do also want to mention that we have a positive EBITDA impact of 6 million which is related to a divestment of a subsidiary where we're selling off the sales entity of Peak France that we acquired in 2024. So we're selling that to the managing director that will run it in a way taking in a bit more special parties that we do not normally do in the group. So we feel it's better to treat this as a distributor. On very good terms and we're happy to continue this collaboration for the future. The earnings per share 3.65 and nothing super interesting happening here. We have a slightly higher estimated tax, which is explained in the slightly lower EPS compared to the previous quarter, even if the EBITDA was on similar levels. Then I also want to make a couple of comments on the cash flow from operating activities, which was by far a record with 334 million. We have a couple of things that are supporting us, one time effect here. We did have pretty high receivables going out of Q1, and that is now flowing in. So we were reducing working capital a little bit and getting a 53 million positive effect from the working capital reduction. Also, inventories are down a little bit. I think going forward, given what we said on the component side, on the memory side, we do believe that we will have to tie up a little bit more inventories. We would be happy to tie up more inventories when it comes to memory. Now, it's not so easy to do that given the allocation that is going on, but we'll do our best to increase them and secure them to the demand on the memory side for the coming year or so. Basically, that's the plan for the second half. Otherwise, for the year also solid cash flow from operations, 584 million, a pretty big improvement compared to previous year. And then let me also stop on looking at the net debt, where we have 2.26 billion sitting in net debt going out of the quarter. Small increase actually compared to Q1, explained by the dividend has gone out in Q2 with 241 million. We also made a final payment of the Peak acquisition that impacted this a little bit. We're managing to come down to 1.74 net debt to EBITDA multiplier when it comes to the pre-April 16 level, which is a small improvement compared to Q1. And given the legacy of the last year or so, I think we're quite happy to be on that level and we're now focusing on some continued and nice things and with the new division structure, we're on a good level in the divisions, having good dialogues going, so quite happy to see that. We also managed to reduce the interest cost, both of course from the lower leverage and such, but also from better terms in the new bank agreement that was signed around New Year. So that's good to see. And then for me it's just lastly kind of summarize what we said for the second quarter. I'll try to do this quickly and as you've seen, solid organic growth pretty much driven from all markets. We recognize sales of 991 million. The two larger divisions are both on double-digit growth, both in terms of orders and sales, and again data center investments are the main driving factor for the growth. When it comes to profitability, we have also record profitability, record cash flow, very happy with the cash conversion here and looking good for the future, even if we know the third point here that we will have, it is still a little bit uncertain macro and we know that we will see these times and slightly higher cost for memories. We just want to flag we will do all that we can to mitigate the situation, but there might be some disturbance through the second half of the year. And with that I'd like to hand over to the operator for any questions we have.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Jesper Süßenguth from Handelsbanken. Please go ahead.

Yes, hello Stefan and your team. I hope you can hear me.

Yes.

Yeah, okay, great. So, could you just help me understand how we should think about the strong margin improvements you mentioned here on the call, but the margin is quite strong despite the higher investments. Is this mainly driven from volumes and pricing and tailwinds from the gross margin, the mix, and or is it that the cost synergy initiatives are still lagging here and you expect more to come in H2?

Yeah.

Okay, great. Thank for that. How sustainable is the current strength in the data centers and semiconductors, you think? And how much of the demand is project-driven versus temporary?

Okay, thank you for that. And how large is then the AI data centers vertical for you, you think?

Okay, I see. I see. Thank you for that. I'll jump back in line and I wish you a good summer.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Victor Hogberg from Danske Bank. Please go ahead.

Good morning. You said that the gross margin was elevated now in Q2 partly mix. What do you expect ahead? Could you quantify the step change in the second half in gross margin so that we don't extrapolate the Q2 level too much, that's the first question.

And maybe I'll start with that one then. I think what we see is this, as you said, it's a little bit elevated from the mix. And then we also expect now to have maybe a bit of headwind from the semiconductor increase. So I think, let's say maybe it's a percentage point elevated due to an extraordinary mix in the quarter. And then maybe we could have another percentage point impact, something like that from the semis. So I would expect that to be still north of 62 but not necessarily north of 63. That's the best guess we can do at the moment.

Okay, thank you. And also could you maybe describe the pacing during the quarter and over the individual months over the markets on the segments, that would be helpful as well.

Okay, thank you. And last one, we talked a little bit about it on 2026 but just an update on the product development efforts which you talked more in detail at the CMD. Is it going where you want it to in terms of the deliverables and also capex and costs involved? 2026 seems to be on track. What about the rest of the planning period?

Maybe I'll talk about the cost side. Well, I can start just to we are happy to see that we are releasing new product generations. We just released a fantastic product line from N phone NT7000, which we believe is a fantastic product line for either switches. We released a new generation of Ewon products and later this year we have a big Anybus release. So I think we're seeing good progress on the product releases.

Yeah, I think we've been keeping the prices we set pretty well. And if anything, I don't want to promise too much, but we see actually we're coming out slightly better than planned on this INT project where we've been able to have massive gains using, I guess, tools for the coding. So we were actually doing more than what we had planned to do in the same time frame. Which I guess is also maybe part of the explanation that we're managing to hold up quicker than the cost side. That would be a little bit more efficient than we thought. So I think that's positive and then otherwise I think we're keeping the plans and as I said before, the run rate that you see right now both in terms of activation situation of R&D cost and on the cost side does pretty much what we expect to be at for the rest of the year.

Thank you.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.