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spk04: Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the VIA Optronics Third Quarter 2020 Earnings Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Monica Gould, Investor Relations. Please go ahead.
spk05: Good afternoon, and welcome to VF Tronics' third quarter 2020 financial results conference call. I'm Monica Gould, Investor Relations for VF Tronics. I would first like to thank everyone for their patience today. As some of you may know, there was a significant network outage this morning in the U.S. that affected our conference call service provider and required us to reschedule our earnings conference call. Joining me on the call today will be Juergen Eichner, VIA's Chief Executive Officer, and Daniel Juergen, VIA's Chief Financial Officer. Today's call is being webcast live and will be archived on the Investor Relations section of our website at via-optronics.com, where our earnings press release is currently available. Certain matters we will be discussing today, including the business outlook and financial projections for the fourth quarter 2020, are forward-looking statements. Such statements are subject to the risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in our documents filed at the SEC, including our registration statement and prospectus. And with that, I'd like to turn the call over to Juergen.
spk03: Juergen Eichner, VIA Optronics Yeah, thank you, Monica. So, good morning, everyone. This is Juergen Eichner from VIA Optronics. First of all, thank you for joining us today for VIA's first earnings conference call as a public company. We are pleased to report that despite the pandemic, the demand for VIA's innovative solutions remains strong in Q3. We recorded top-line growth of more than 40% year-over-year, driven by both our display solutions and sensor technology segments. Sequentially, we reported double-digit revenue growth and further expanded our order book. Our pipeline and visibility remains robust, positioning us well for a strong finish of the year. We expect our momentum to remain strong in 2021 as we begin to ramp up production of several important projects. To give you a sense of our progress, I would like to touch on some notable milestones we achieved during the quarter. As some of you may know, we have a very strong position with the electronic vehicle manufacturers, which we continue to expand upon. during the third quarter we shipped the first prototypes for a leading us-based ev company for a large format cold form display assembly marking our first cold form project with a u.s auto manufacturer in support of this project we started the construction of a new manufacturing facility in germany with a capacity of 10 000 units per month this alone will more than double our capacity in Germany by adding 1,600 square meters with potential for further expansion in the future. On top of that, we also replaced the semi-manual production process in our existing German facility to a nearly fully automated one, adding to our production capacity another 50,000 pieces units per month to a total of 60,000 units per month. The German side successfully passed the ISO 9001 audit again last quarter, and we are targeting the IATF 6949 certification towards the end of next year. Out of the new project awards we received, I would like to highlight two in more detail. First, in the automotive sector, we received an award from a UK EV customer for a new sports car. Second, in the consumer electronics sector, we received two new awards from a large US-based customer for industrial laptops with sophisticated touch features. Since some of you may be new to the VA story, I would like to take this chance to provide a short overview of the company, the markets we serve, and our key growth drivers. I will then turn the call over to Daniel Juergens, our CFO, who will provide a more detailed review of our third quarter, financial performance, and fourth quarter outlook. So let's start with the company overview. We are the leading provider of interactive display solutions for multiple end markets, which superior functionality or durability is critical in a differentiating factor. We define an interactive display solution as a combination of display, touch, and camera, plus the electronic control unit, the ECU. Interactive displays which are a combination of touch sensors and LCD, a major element of these systems, and the key interface that people will use to interact with the digital world in the future. The future is interactive, and touch is a very reliable way to communicate with a computer system similar to a desktop keyboard or a mouse. Voice is still very limited and not that reliable. It can support the touch, but it cannot replace it. It is very important that all elements of an interactive system work perfectly well together. For these reasons, we are not only providing the touch and display solution, but also cameras as the main sensor element of an interactive display system and constantly increase the focus on the electronic control unit being the core of the system, including the drivers and software. The technology behind these elements is becoming increasingly more complex. The requirements to overcome technical and optical challenges in increasingly demanding environments are more challenging every year. We as technology expertise positions as well to offer solutions to our customers to meet these challenges. We provide high-end bespoke solutions for demanding customers, not off-the-shelf commodities. Since our inception, we have shipped more than 6 million displays, not counting touchscreens, cameras and other system components we deliver. We have been granted more than 110 patents with another 50 plus more patent spending. Our customers and design partners include many of the world's largest OEMs and system integrators in the automotive, consumer electronics and industrial specialized applications markets. Let me say some words to the addressable market. We are pushing for a significant market opportunity and we believe that the total addressable market for our display solutions is robust and growing. We estimate that our term for display solutions is greater than 43 billion in 2020 and is expected to grow to be greater than 49 billion by 2024. This TAM covers displays, but does not include standalone touchscreens or cameras and excludes complete systems. While this market is currently growing at a single digit rate, we are leveraging to the higher growth segments of the markets, including auto and industrial. The share of our products within this market is increasing, which is driving our higher revenue growth rate. As an orientation for you, the global market for industrial and specialized applications is expected to grow at a compound annual growth rate of 9.1% to an estimated 11 billion in 2024, and the market for automotive displays is expected to grow at a compound annual growth rate of 14.5% to over 8 billion in 2024. With regards to our technology and competitive strengths, Some remarks here. Our comprehensive portfolio of offerings enables thin and lightweight display products with high optical clarity and vivid colors. We offer high bright display solutions with very low power dissipation. Our focus is to generate high contrast ratio instead of power hungry backlight solutions and reduce reflections. You will not find products like ours as commodities in the market. Here, our proprietary silicon-based bonding material and patented optical bonding processes play a key role. We are in the unique position of having material, process, and production equipment design in-house, and we also have the development. This enables us to offer a wide variety of customized display solutions, including curved display panels and solutions integrating multiple displays, touch assemblies under a single cover lens. Our metal mesh touchscreen solution allows all types of touch functions, including gestures, hovering, the ability to work with gloves, and in the rain. So we are offering more than a traditional touchscreen. Moreover, we manufacture the complete product in-house and buy only raw materials. Our touch technology is protected by a variety of patents and licenses. Recently, we also introduced our own automotive camera solution to support driver assistance and ADAS functions. Of course, these cameras can also be used in industrial equipment like tractors, harvesters, construction equipment, etc. These cameras are differentiating by having a very small footprint in a plastic housing covering the complete automotive temperature range. We believe that our proprietary silicon-based bonding material patented optical bonding process Our metal mesh touch sensor technology as well as our competence in camera module design and overall in-house capabilities, which are based on many years of cross-market experience, are among some of VIA's key differentiators. We have a proven engineering team and our technological expertise is well suited for complex applications and demanding environments. We offer our customers a high level of customization with flexible modular designs. We have production sites in Germany, China and Japan. Our global footprint has enabled us to overcome limitations arising from trade wars and COVID-19. With regards to the end markets, our customers operate in the automotive, consumer electronics and industrial specialized application markets. Most of our customers in these markets are blue chip companies. We have long-standing relationships with our customers and, quite often, jointly define comprehensive and customized solutions that meet their specific requirements, which we will then implement and produce. For our long-standing OEM customer base, we have become an important design partner. Our consumer electronic offerings include solutions for notebooks, tablets, and all-in-one monitors. We work with large global companies such as Dell, HP, and Lenovo. Our industrial specialized solutions are part of in-flight entertainment systems, ruggedized laptops, marine navigational systems, and fish finders, agricultural equipment, surround view systems, digital signage, interactive conference room displays, and defense applications. They can be found in products from 3M, Dell, Emirates Airlines, GE, Honeywell, John Deere, and Siemens, among others. As indicated before, we have a very high focus on the automotive end market, where we work with OEMs and automotive tier ones. To name a few, these include companies like BMW, Ferrari, General Motors and Rolls-Royce. Our solutions include interactive displays for navigation, instrument clusters, rear seat entertainment and infotainment systems, cameras for surround view, driver monitoring with a strong focus on interactive display systems. The advanced automotive camera module technology that we are developing include driver assistance features, driver support, such as driver monitoring and surround view, which promote enhanced vehicle performance and safety. On top of that, we are already very excited about our strategic collaboration with Corning, one of the leading glass producers. This collaboration began in August 2018 and has already resulted in the mass production of our first products earlier this year. Corning also invested approximately 20 million in our IPO in a concurrent private placement. Our collaboration, which combines our technologies with Corning's ColdForm technology, enables us to jointly design and deliver the most innovative curved glass interior display and touch solutions and further strengthens our market position. We are working on several automotive projects with OEMs, currently focusing on high-end cars and electric vehicles. VR's focus is on providing a complete interactive dashboard display cluster assembly using Corning's ColdForm glass technology with optical bonded display touch assemblies. Another area of our development focus is to replace the more expensive metal frames with specific plastic solutions, thereby reducing the cost significantly. We believe our share with the solution in the auto industry will be significant as the total number of displays in the use of glass as a design element in vehicles steadily increases. With regards to future growth, we have a strong and growing pipeline across our end markets. We currently have over 500 projects in process with a combination of existing and potential new customers. Our growth will be driven by expanding the number and size of our projects within our existing customer base, expanding our reach to new customers, specifically in the automotive market, and leveraging our sensor and camera capabilities to deliver system solutions. In summary, I am very encouraged by our performance comprehensive and differentiated offerings, coupled with a large addressable market position as well for long-term growth. With that, I will now turn the call over to Daniel to discuss our financial results and outlook in more detail. Daniel?
spk00: Thank you, Juergen, and good day, everyone. I am Daniel Juergens, CFO of Vioptronics. I'll start by reviewing our financial and operating performance for the third quarter of 2020. and then provide our outlook for the fourth quarter of 2020. First of all, I would like to note that we report our financial results in two segments. Our display solution segment, which includes the development, production, and sale of interactive display solutions using our optical bonding technology. Our second segment is our sensor technology business, which we acquired in 2018 and is located in our Japanese subsidiary VTS and includes the development, production, and sale of our metal mesh touch sensors, both for use in our own enhanced display solution and as component parts to third party customers. Now turning to our third quarter results. Total revenue in the third quarter of 2020 was 43.6 million euro, which compared to 30.6 million euro in the third quarter of 2019. The increase of 42.5% was driven by strong growth in our display solutions and sensor technology segment. Total display solution revenue was 35.9 million euro in the third quarter of 2020, up 41.9%, from €25.3 million in the third quarter of 2019. The increase was driven mainly by increased sales from our consumer electronics and industrial customers, including Dell and Picatron. Total sensor technology revenue was €7.7 million in the third quarter of 2020, up 45.3% from €5.3 million in Q3 of last year. The increase was driven mainly by strong demand for notebook PC, driven, for example, by the global increase of working from home. Turning to our gross margin, total company gross margin for the third quarter of 2020 was 14.7%, up from 1.6% in the first quarter of 2019. This increase was mainly driven by improved margin in our sensor technology segment. Specifically, our sensor technology segment's gross margin rose to 16.9% in the third quarter of 2020 from negative 47.2% in the third quarter of last year due to substantially lower raw material costs based on lower usage of third-party materials and a higher yield compared to the third quarter of last year. solution segment gross margin increased to 14.2% from 11.9% in Q3 of last year, and was also driven by benefits from our cost reduction program that we implemented in the beginning of 2020. Similar to Q3 last year, revenue from our display solution segment represented approximately 82% of total revenue in the third quarter, while revenue from our census technology segment represent approximately 18%. The breakup of our display solution segment revenue can be made by the use of our products in their end markets and is related to the total group revenue as follows. Revenue related to the industrial specialized applications end market accounted for 35% of our total revenue, which compares to 36% of the total revenue in the third quarter of last year. Revenue related to our consumer end market in the third quarter represented 30% of our total revenue, which compares to 30% of the total revenue in the third quarter of last year. Revenue from our automotive customers accounted 17% of total revenue in third quarter 2020 compared to 18% in third quarter 2019. Turning to expenses. Total operating expenses, excluding offset from other operating income, in the third quarter of 2020 were €6.1 million, or 13% of total revenue, which compares to €6.5 million, or 21.2% of the total revenue in the third quarter of last year. EBITDA in the third quarter of 2020 was €3.5 million, or a margin of 8%, compared to negative €3.7 million in the third quarter of 2019. We recorded net income in the third quarter of 2020 of €1.5 million, which compares to €0.2 million in the second quarter of 2020. Based on a weighted average share count of 3.07 million shares. This translates to a basic and diluted earnings of 0.47 euro per share, as we have no dilutive securities. Now turning to the balance sheet, we ended the quarter with cash and cash equivalents of 87.4 million euro, which included cross proceeds of the IPO of 93.75 million dollars. and a total debt of 33.4 million Euro. In the fourth quarter of 2020, we expect total revenue to be between 37 million Euro and 40 million Euro, which will exceed last year's fourth quarter. We believe our guidance is conservative due to the potential to a second lockdown in countries around the world, which may impact some of our customers. Overall, we are pleased with our financial results and the successful completion of our IPO during the third quarter, which positions us well to capitalize on the growth opportunities ahead of us. I will now turn the call back to the operator to open up the line for questions. Thank you, operator.
spk04: Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question is from Anthony Stoss from Craig Hallock. Your question, please.
spk02: Good afternoon, Juergen and Daniel. A couple of questions. Maybe you can hopefully go into a little bit more detail on the improving gross margins, especially on the sensor side. Where do you think that can go in the December quarter or, frankly, in calendar 2021? Also love to hear how much of the G&A was one-time IPO-related expenses in the September quarter. And then lastly, what was the CapEx number and what's your thoughts in terms of CapEx? You talked about building out more production in Germany. Just curious your view on CapEx going forward. Thanks.
spk03: Oh, Daniel? Yeah. So I can potentially, maybe let me say some word to the sensor development up front. Yeah. Because the rest is basically financials. So Anthony, with regards to the sensor segment, we are not only trying to improve the current technology that we have, we're also looking into a new technology, which I cannot talk too much about that right now. So what you see in terms of numbers is basically our existing technology and not the new developments. So overall, we believe that there will be a stronger growth in margins, but maybe Daniel can say something to that as well. So I hand over to Daniel regarding the overall numbers for CAPEX and the other questions that you raised.
spk00: Yeah. First of all, your second question was on IPO costs included in the third quarter. The direct IPO costs or costs directly related to the IPO, like lawyers or also the investment banks, are, according to IFRS, deducted from the proceeds. And But there are, of course, included, let's call them indirect IPO-related costs, because we have, and we will see that maybe also in the future, indirect costs that are coming from the preparation for an IPO, like processes or our internal structures, like continuous... improvement of internal controls and things like that. But there are no direct related IPO costs in the third quarter. And your third question was about the CapEx in the future. There will be, like we already announced in the prospectus, There will be, of course, CAPEX in the future for the increase of our production capacity and capabilities. Like we currently, as Jürgen mentioned, building up a new production site here in Nürnberg to fulfill the needs for additional projects. There will, of course, this will cost money. But our capex for additional production in general is not that high. Even here, we expect capex around 5 million.
spk02: Okay. Maybe if I could follow up with Juergen just related to the expansion of the production in Germany to 10,000 units. You've talked about This new project with a U.S. EV maker will ramp up volume in early 2021. Will the additional 10,000 units per month that you just talked about, is that something that's needed down the road, or do you need that in order to service this customer for early 2021 and maybe help us understand the additional capacity you're putting in, how long that takes to put in?
spk03: So the 10,000 units that I mentioned is basically for this company, for that production. To be honest, the only reason why we had to do that right now in a new site was because our current building, we have space, but that space is still occupied by a tenant. We can only get out in the next year. So we had to take this additional site which is at the end of the day we are pretty lucky because it looks like we have more projects coming in to the german side so at the end of the day we need this whole capacity now again the 10 000 is only for one for this one customer and the new additional capacity in in number with related to automated lines is spread over several customers
spk02: But if I could ask one final question, I'll jump back in the queue and maybe for either of you two. The quarter was better in terms of revenues than what you were, I think, anticipating going in. And originally you were thinking that the December quarter would be flat. Did you pull some revenue, do you think, from the December quarter into September since December is now looking down sequentially? I know when you add them both together, it's still pretty strong. But I'm just curious if you think you pulled some of the revenue from December into September. Nope.
spk03: We didn't pull revenue in. That's not the case. At the quarter end, we never really know how much initial customers will pull out of our warehouses because at the end of the day, this is also their quarter end. So the quarter end is usually kind of a... a financial political event, so we cannot plan that accurately. But we have not pulled any revenues in from Q4 into Q3. And the reason why we give the guidance for Q4 that way is That at the end of the day, it looks very positive at the moment, but we try to remain conservative because you never really know what's happening, what will come up at the moment. We have a potential soft lockdown in several countries of the world that may affect us. So this is why we have been more conservative.
spk02: Understood. Thank you for that. Appreciate it. Good luck. Thank you. Thank you.
spk04: As a reminder, if you wish to ask a question, please press star followed by one on your telephone. The next question is from Gustav Froberg with Berenberg. Please go ahead.
spk01: Hi, both. Thank you very much for taking my questions as well. I have a couple. Firstly, just on Q3, I was hoping you could give us a little bit more color on the type of projects that you've been working on in Q3 that has driven the strong growth. any color on the type of customers that have been driving this. And then also maybe in that context, you could help us understand how much of your revenues in Q3 came from new customers versus existing customers. And then finally into Q4, I know you gave a little bit of an indication as to what to expect there, but Maybe you could tell us a little bit about what lies behind your planning. Do you know what type of projects you have currently in the pipeline? Just a bit more color on the actual drivers of Q4 would be very interesting. And then a final question just on GNA, the GNA line in your P&L for Q3. Could you maybe give us some reasons why the GNA costs increased so much in Q3?
spk03: So maybe, Daniel, again, more financial questions, but upfront for me, we have, as you can imagine, the projects we worked on in production in Q3, they have been existing projects. There was not a significant new ramp-up in Q3. So it was basically a variety of projects and based on demand. The new ramp-ups, there will be, if you are There should be, I think in Q4 we have a few, but they will probably not yet contribute that much to the revenue. But Daniel can say more about the spread in general. So it was an increase in demand, and that is also what we potentially see foregoing. But with regards to the... also said about regarding the the increased cost that we have keep in mind that we are planning for a big ramp up in january in uh in in germany so of course you have to do upfront investment so you have to hire um stuff you cannot let's say if you ramp up in the middle of january you will not get all the 50 people that you need and when you start and start to hire them at this point in time they have to have training before um and we have to have the in-house so this is something which contributes to that but i'll leave the remaining part to daniel thank you yeah good stuff um thanks for the questions um i think most of it is um is is answered um by you in the
spk00: about the Q3 revenue development. We have drivers for Q4 are not new projects that are very few new projects. As Juergen already mentioned, we are very conservative on that and want to be careful because it is really not very stable conditions around the world. However, we look forward that also this will be a good quarter. The cost driver in general are that, of course, we have more costs, as I mentioned before, that are indirectly used for preparing for the IPO structure. And besides that, we have to, as we mentioned already in the in the prospectus, we will increase our research and development teams, and that we already started. Juergen talked about that. We already started. We have to start that, and we had here also additional costs, and we had all over. Yeah, we have additional quality costs and expanding the quality team. So all over, we have in G&E additional costs for personal. I think this is majorly driving the costs.
spk01: Thank you. Just to follow up on the cost, could you maybe help us quantify or think how to think about the magnitude of the indirect IPO costs that you talked about?
spk00: That I can't by now quantify because it is everywhere. There's a lot in quality, but we have to work in quality. Anyhow, as you know, if you are stepping in the automotive market or expand in the automotive market, you need to have several certificates on that and you need to fulfill a lot of quality requirements. But these quality requirements, I don't know if you are familiar with that, many of them help with the requirements for us. For example, you have with the internal control requirements coming from the U.S. regulations. So it is not really to separate. Of course, there are some that I would say you can separate, but I have not that in my mind. It's not that big amount that you really can separate and say that is only helping us with the IPO structures.
spk01: Okay, no problem at all.
spk04: The next question is from the line of Charlotte Friedrichs with Berenberg. Your question, please.
spk06: Hello, thank you. Just two follow-ups from me. I'm more focused on your project pipeline here. In the beginning, you mentioned that you had two new projects, one in automotive for a U.K., EV maker of sports cars and then also in the consumer area for industrial laptops. Can you give us an idea of maybe the size? Are these larger projects or rather more smaller incremental ones?
spk03: The EV form project in that case is a, I would say, Not small, but in revenue-wise, it's not that big compared to the one we have that you know. We don't do 10,000 pieces a month, let's put it that way. We are talking about 1,000 or 1,500. But if you talk about the notebook project, that's a regular-sized industrial notebook project. It's pretty much the same.
spk06: as as all the other projects we have in that area from from the from the quantity advice okay understood and then another question on on the larger ev project that you have um going on um i understand you've been shipping the first prototypes now can you walk us through what the next milestones are when you expect to kick off production and how quickly that will be ramping up
spk03: Well, the next milestone will be, of course, another set of prototypes, but we are not talking about tens. We're already talking about hundreds this year. And the ramp-up, at the moment, we plan to ramp up as early as possible in Nuremberg, of course. It depends a little bit on the facility. It also depends a little bit on how we size facilities. the production. There is currently a discussion of bringing more automation in that process and delay the production in Germany for a while and produce in China for a smaller period. If that's a benefit, the customer would easily take the penalty into account that they have today. I think it's 20-25% or whatever on top of the unit. So this is in discussion right now. So it could be very early next year, or it could be the moment in the March-April area. But we are discussing that. It's not completely confirmed.
spk06: Okay. And the feedback on the prototype so far, have you received any feedback there already?
spk03: Yeah, so far what I have heard, they were excited. Even I didn't see them yet, but the feedback was quite good.
spk06: Okay, so far no reason to assume that there's anything that may go wrong in that regard, right?
spk03: No, there's no reason to think that. It's more or less how to optimize right now the ramp-up. That's the only... a thing which needs to be settled. But it's not a good or a bad thing. It's just finding the best solution.
spk06: Okay, understood. And the penalty payments, can you just remind us how those work?
spk03: Sorry, the penalty payments?
spk06: The penalty payments in case there's a delay because they want to have higher automation, for instance.
spk03: It's not a penalty payment for us. It's basically for them. The U.S. has imposed a 20% or 25% tax for goods built in China.
spk06: Sorry, that's what you meant.
spk03: It's not a penalty for us or for them, so they are willing to accept that. Overall, at the end of the day, if the higher automation provides a long-term benefit, then they are willing to take this extra cost and um so this is why i said it's not a penalty it's just extra higher cost they have to pay on top of of it i i consider it as a penalty because if you have to import anything out of china in the us right now everybody has that penalty okay understood thank you very much yeah you're welcome there are no further questions at this time i hand back to jürgen eichner for closing comments Yeah, so again, thank you. Thanks, everybody, for joining us on the call today. We are very excited about our VIAs next stage as a public company, and we appreciate your interest and support. We are looking forward to update you on our progress in the next quarter. And with this, I would like to hand over back to... Oh, God. Back to our investor relations. Sorry for that. It's too late.
spk05: Thank you, everyone, again, for joining our call today, and we really appreciate your patience as we had to reschedule at the last moment. Thank you.
spk03: Thanks, everybody. Bye-bye. Bye-bye.
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