ASML Holding NV 2026 Q3 Earnings Call

Welcome everyone, this is Jim Kavanagh, Head of Investor Relations at ASML. Joining me today on the call are ASML CEO, Christophe Fouquet, and our CFO, Roger Dassen. The subject of today's call is ASML's 2026 third quarter results. The length of the call will be 60 minutes, and questions will be taken in the order that they are received. This call is also being broadcast live over the internet at www.asml.com. A transcript of management's opening remarks and a replay of the call will be available on our website shortly following the conclusion of this call. Before we begin, I would like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of the federal securities laws.

These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release, and presentation found on our website at www.asml.com, and in ASML's annual report on Form 20-F and other documents as filed with the Securities and Exchange Commission. With that, I would like to turn the call over to Christophe Fouquet for a brief introduction.

Thank you, Jim. Welcome, everyone, and thank you for joining us for our third quarter 2026 results conference call. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the third quarter 2026 results, as well as provide some additional comments on the current business environment and on our future business outlook.

Roger. Thank you, Christophe, and welcome everyone.

I will first review the third quarter 2026 financial accomplishments and then provide guidance on the fourth quarter and the full year of 2026. Let me start with our third quarter accomplishments. Total net sales in the third quarter of 2026 were a record at EUR 11.7 billion towards the high end of our guidance and reflecting strong execution of our capacity ramp. Net system sales were EUR 8.4 billion, which includes EUR 4.1 billion from EUV system sales, including the sale of one High-NA EUV system, and EUR 4.3 billion from non-EUV system sales. Net system sales were split between logic at 54% and memory at 46%. Installed base management sales for the quarter were EUR 3.3 billion, exceeding our guidance by almost EUR 0.4 billion, primarily due to the strong demand for our productivity upgrade products in both EUV and DUV.

Gross margin for the quarter was above guidance at 57.5%, primarily due to the contribution of very high-margin components within our installed base management business. Our operating expenses were as guided, with R&D expenses at around EUR 1.2 billion and SG&A expenses at around EUR 0.4 billion. The effective tax rate for Q3 was 16.1%. For the full year 2026, the expected annualized effective tax rate is around 17%. Net income in Q3 was EUR 5 billion, which includes around EUR 0.5 billion as a result of an increase in the valuation of our initial investment in Mistral AI, representing 42.5% of total net sales and resulting in earnings per share of EUR 12.95. Turning to the balance sheet. We ended the third quarter with cash equivalents, and short-term investments at a level of EUR 12.7 billion.

Our free cash flow in Q3 was EUR 11.4 billion, underpinning the strong order momentum of our customers and the related down payments. Moving to the cash return to our shareholders. In Q3, ASML paid the first interim dividend over 2026 of EUR 1.88 per ordinary share. Further, we purchased in Q3 around EUR 4.1 billion worth of shares under the current 2026-2028 share buyback program. The second quarterly interim dividend over 2026 will be EUR 1.88 per ordinary share and will be made payable on November the fourth, 2026. With that, I would like to turn to our expectations for the fourth quarter and the full year 2026. We expect Q4 total net sales to be between EUR 14.2 billion and EUR 15.2 billion, with a gross margin of around 57%. We expect our Q4 installed base management sales to be around EUR 3.7 billion.

The expected R&D expenses for Q4 are around EUR 1.2 billion, and SG&A is expected to be around EUR 0.4 billion. Regarding our full-year expectations, we expect our full year 2026 total net sales to be between EUR 44 billion and EUR 45 billion, with a gross margin of around 56%. This anticipated year-over-year total net sales increase of around 36% reflects our expectation of over 45% growth in EUV, around 20% growth in non-EUV related system sales, and around 50% growth in installed base management sales. Turning to end use, this year, we expect logic net system sales to grow around 10% and memory net system sales to grow around 75%. The growth in memory is driven by the combination of capacity expansion of our customers and the increasing adoption of EUV on advanced DRAM nodes.

As previously mentioned, we continue to expect the China region to account for around 20% of our total net sales this year. In summary, the third quarter was a record for both total net sales and gross margin, and we expect our business to continue to accelerate in the fourth quarter as we execute against a backdrop of very strong customer demand for all our products and services. With that, I would like to turn the call back over to Christophe.

Thank you, Roger. If we take a step back to look at the market environment, we see that the pace of the AI build-out continues to be very robust. Supply shortages across advanced logic and memory nodes continue to increase in size and in time horizon. Against this backdrop, we had very constructive discussions with our customer throughout the quarter, and the demand signals we have received have continued to strengthen. Our leading edge high volume customers are sharing very good visibility as a result of the increasing number of long-term commitments they are securing with their customers. This extended visibility has led them to conclude that demand for their product will outpace supply through at least 2028. As a result, customers are accelerating capacity build-out plans and preparing for further expansion beyond 2028 in order to better meet the anticipated level of demand.

For us, their drive to add capacity is translating into not only greater short-term demand across our entire holistic lithography portfolio, but also improved longer term visibility and demand, especially for our EUV products. As customers shift focus to their needs beyond 2027, our order momentum continues to build. We are increasingly receiving orders for 2028, and customers are also expressing interest in placing orders for 2029 and even 2030. As our customers are preparing to meet rising demand, we, in turn, continue our focus on adding capacity to support their needs. Roger will now share further details on our latest plans on providing our customers additional capacity.

Roger. Thank you, Christophe. We have been very successful in ramping capacity this year.

For low-NA EUV, we anticipate output of roughly 65 systems for 2026, which is nearly 50% more than the 44 systems that we shipped last year. For DUV immersion systems, while our initial output target for these systems was well below the prior year, we now expect we will deliver a similar quantity in 2026 as we did in 2025. Looking further ahead, we shared our intent last quarter to increase our capacity in 2027 by 30% for both low-NA EUV and DUV immersion systems, as well as to investigate adding a further 30% in 2028. However, given the dynamics of this quarter, we now anticipate that our current planned levels of output in 2027 and 2028 will not fully meet the demand of our customers.