IQE plc

Hello everyone and thank you for joining us for IQE's entering results. I am proud to be able to present a really strong set of numbers which exceeded our expectations and reflects the new transformed IQE. It's been 133 days since we've announced the conclusion of the strategic review and the investment from Macom and other existing shareholders in April. I am very happy to say that it's been an incredibly busy period since then, defined by some key commercial milestones and the signing of long-term agreements. It's a fundamental change in how we operate as a business. I've always been clear that one of the things I wanted to achieve was greater visibility of orders and revenues, and that's what these agreements are building towards. So as well as the multi-year agreements with Macom, we've also signed a multi-year Indian Phosphate Agreement with Tower Semiconductor, a $14 million production order with an AI and data center customer. And just last week, we've announced a purchase agreement with Quintessent for Quantum.Epitaxy. These agreements reflect both the increasing demand in the market, especially from AI and data centers, but also how our strength in financial and operational position is enabling us to take advantage of those opportunities to expand our order book and to build visibility for the future. Let's take a closer look at the progress IQE has made in first half. This slide gives you a clearer sense of how we play into our high growth end markets. I will not go through every point on the slide, but what I want you to take away from this is two key points. First, we are operating in the biggest and most important markets in the world, and they're all growing rapidly. This is visible to anyone who's been looking at the global semiconductor ecosystem, in particular, the exponential growth of AI and data center related supply chains. Second, we have multiple routes into each of these segments. Our range of technologies mean that we can provide different solutions for these high growth sectors and access a broader pool of potential customers. Let me now touch on a few examples to bring this to life. Firstly, looking at IQE in the AI and data center market. As we've previously highlighted, we are seeing high demand for our indium phosphate and gallium arsenide optical interconnect technologies. But layered on top of that are our gallium nitride on silicon micro-3D epitaxy for partners serving hyperscalers for high bandwidth, energy efficient data transfer in AI data centers, as well as gallium nitride on silicon power epitaxy meeting the need for high efficiency power supply units within data center infrastructure. I would also like to bring your attention to aerospace RF pipeline with new product qualifications and design wins across terrestrials, satellites, including low earth orbit and defense radar platforms. But at the same time, we've expanded our Gallium Antimonide infrared customer base into new geographies around the world. We take the same approach across all of our markets. Our critical position in these supply chains and our apothecary expertise across a range of material systems is what makes IQE unique and the opportunities for us so compelling. In order to capitalize on the strength of our technology and the market tailwinds, it is vital that our business is operating as effectively as possible. And this has always been a key priority for me. I am pleased to say that our focus on efficiency and operational excellence has already led to strong results with improvements in yields and production outputs across all of our sites. In order to build on the strong progress that we've made, Matt Skeen has been appointed as our new Chief Operating Officer. Matt has been with our business for over 35 years and has significant experience in manufacturing and engineering leadership, NT will help us to strengthen operational oversight and drive continuous improvement. A key element of how we've improved our model is related to the high volume of supply agreements that I spoke about earlier. As this has provided a strong future order visibility and allowed us to better optimize utilization of all of our assets. That is why I'm pleased to say that in the second half we'll be converting some of our existing tooling to increase capacity to meet the strong demand for Indian phosphate. What you see here is a commercially driven model supported by our ability to scale to meet demand and an efficient approach to operations. All of which is flowing through to our bottom line. With that, I'd like to spend the next few slides walking through the financial performance of the half. I'm really pleased to say that we've delivered first-half revenue of 64.6 million, which is an increase of 43% year-on-year. Wireless revenue was 26 million, up 40% year-on-year, reflecting market share gains and increased sales of wireless mobile connectivity solutions across newly qualified customer platforms. On the right hand side, you will see that photonics revenue increased 45% year on year to 38.5 million, driven by funding releases for certain US military and defense programs and continued growth in AI and data center related markets. Overall, I'm happy to see continued growth, not just year on year, but half on half as well. Looking at our key financial highlights, you will see that our strong revenue growth and improved margins flowed through to deliver 6 million of adjusted EBITDA. On margins, we saw good improvement driven by better utilization of our manufacturing capacity alongside a more favorable product mix as photonics made up a greater proportion of sales. Our adjusted operating cash flow was impacted by a working capital outflow of 4 million, while our adjusted net cash position was 30.2 million for the period, following the conclusion of the group's strategic review and receipt of fundraising proceeds. Turning to the net cash bridge. This chart highlights how significant the transformation for IQE has been. The conclusion of the strategic review has meant that we have gone from being a heavily leveraged business at the year end to now being completely free of bank debt with a cash position of 41.6 million. Overall, we have a fully funded balance sheet underpinned by a strong set of financials as we look ahead into the next phase of growth. What you've seen is that first half was a really impressive performance for IQE. This was thanks to both the strong demand across all of our core segments and the improvements we've made to the business. Following our July trading update where we've upgraded full year guidance, we have seen the strong momentum continue into the second half of the year, which is expected to support growth throughout the remainder of 2026 and beyond. As a result, we are very confident of reaching our upgraded guidance. But in line with the way I'm running the business, this outlook reflects a prudent approach. While we are reiterating guidance today, we do also see potential for upside opportunities. Thanks to the rising demand for optical communications for data center and AI infrastructure, which is underpinned by our recently signed supply agreements. I would like to finish by talking about the future of the business and I'm pleased that we've announced our intention to apply for IQE to list on the LSE main market. This is a momentous milestone for the business that has long been an ambition for us and it's a testament to the transformation of the business following the conclusion of the strategic review. This move would enable IQE to access a broader range of institutional capital, improve the liquidity of our shares, enhance our investor profile, and support our inclusion in the FTSE indices. We are targeting admission for first half 2027, but of course we'll update you on our progress in due course. To conclude, what does the strategy for the transformed IQE look like? There are three core elements I would like you to take away. Firstly, we are a business that is supplying the highest growth markets in the world with the broadest technology portfolio in the industry, which enables us to have multiple routes into each of these segments. Secondly, we have a new level of commercial focus and strategic customer alignment that is delivering long-term agreements and a growing order book. resulting in the strongest demand visibility that IQE has had in recent memory. And thirdly, I've embedded a relentless focus on operational excellence and continuous improvement, allowing our business to run as efficiently as possible for the benefit of our customers. Combined with our transformed financial position, this strategy is driving increasing revenues and margins, providing IQE with a clear path to sustainable growth. I am extremely excited about the future and the range of opportunities ahead. Thank you for your time, and I'd be happy to take any questions.

Thank you. Ladies and gentlemen, if you would like to ask a question via the conference call, please press star one on your telephone keypad. We will pause for a brief moment. Thank you. We will take our first question from Robert Sanders of Deutsche Bank. Your line is open. Please go ahead.

Yeah, good morning. Thanks for taking my question. Hi there, everyone. I have a quick question around the if you could just sort of contrast the approach that you've inherited on where you used to have supplier managed inventory with large key accounts, which led to sort of relatively low visibility to the sort of long term agreements that you're now setting up. And is there any chance of receiving upfront prepayments to sort of help to de-risk yourself?