This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Ladies and gentlemen, thank you for standing by. I'm Stuart, your Coors Call Operator. Welcome and thank you for joining the Via Optronics third quarter 2021 earnings call. Throughout today's recorded presentation, all participants will be in a listen-only mode. 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 touchtone telephone. Press the star key followed by zero for operator assistance. I would now like to turn the conference over to Lindsay Savarese. Please go ahead.
spk00: Lindsay Savarese Good morning and welcome to VIAptronics' third quarter 2021 financial results conference call. I'm Lindsay Savarese, Investor Relations for VIAptronics. Joining me on the call today will be Juergen Eichner, VIA's Chief Executive Officer, and Dr. Marcus Peters, VIA's Chief Financial Officer. Today's call is being webcast live and will be archived on the investor relations section of VIA's website at via-optronics.com, where the company's earnings press release is currently available. Certain matters we will be discussing today, including the business outlook and financial projections for the fourth quarter and full year 2021, are forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statement. These risks and uncertainties are discussed in the company's documents filed with the SEC, including Zia's annual report on Form 20-S, which was filed on April 29, 2021. Please note that any forward-looking statements that are made on this call are based on assumptions as of today, and the company undertakes no obligation to update these statements as a result of new information or future events. And with that, I'd like to turn the call over to Juergen.
spk02: Good morning, everyone, and thank you for joining us today. First, I will provide a brief overview of our search for the 2021 results. I will reflect on the accomplishments that we have made during our first year as a public company, provide an update on some key achievements and notable awards in the quarter, and will end with some commentary on our strategic initiatives looking forward. Our goal is to provide as much transparency to the investment community as possible. Markus will then review our third quarter financial performance in more detail and provide our outlook for the fourth quarter of 2021 and the full year. Turning to the third quarter, revenue of 49.4 million increased 13.3% year-over-year, driven by growth in our display solution segment. Our EBITDA in the third quarter of positive 1.1 million decreased from positive 3.5 million in the third quarter of 2020. Looking back on this past year, we have made significant progress on executing on our strategic plan that we laid out during the IPO process. Notably, we have now reported four quarters of double-digit year-over-year revenue growth since becoming a public company in September 2020. We continued to diversify our end-market revenue base and increase our sales in the automotive and industrial end markets. We completed the highly strategic acquisition of Germanius, a profitable automotive specialty company, earlier this year. This transaction expanded our engagement into the early concept phase of the car and has increased our value proposition to our customers as we now have the complete interactive display design competence, including the processing software part in-house. We have made a number of improvements to the organization to support our future growth plans. Notably, we have increased our R&D talent this year, both organically and inorganically, through a recent acquisition of German years. We staffed more than initially planned during the last month because of the necessity for existing projects. With these investments, we are now pushing interactive display and sensor systems offering ahead. Furthermore, earlier this year, we initiated a research and innovation team that is focused on developing our materials and process further and develop new technologies. This team now works together with the R&D team of SigmaSense, our most recent investment, to develop a variety of new functions and features for touch sensors and touch modules, some of which we will show during the CES show January 2022 in Las Vegas. As anticipated, we have expanded our production facilities, which I will touch on in a moment. We have also strengthened our sales organization to capitalize on the growth opportunities ahead of us. This has resulted in increased cooperation with our existing customer base with the full scope of our capabilities now. This paid already back with increased traction of existing and new customers, and we expect further traction after CES. We have already mentioned a strategic camera design win with the US EV maker, where we supply all cameras for the car and can generally report a strong increase in camera design in activities as well as we have started to ramp up new camera projects this year. Design wins have been stable. However, we are moving more towards larger projects with longer life cycles and higher value. As many of you know, this has been an exciting year for the EV market with many new companies becoming public in 2021. As EV companies build out their supply chain infrastructure, we are focused on increasing our share in this market. We are pleased with the traction that we have had with this front counting already. Three major US EV makers, one UK EV maker and Chinese EV makers as our customers. More recently, we have expanded our presence in the overall EV infrastructure market by providing display touch solutions for EV charging stations. Overall, I'm pleased with the positive momentum we are seeing and with our execution against our strategic initiatives. Turning to some of the dynamics in the third quarter, I'd like to address the global component shortage and specifically the impact on the app. We have been able to successfully manage the impacts of the global supply disruptions, maintaining a double-digit revenue growth and continue our growth path. Just during the last few days, we saw once more disruption, which have caused us to set our guidance for this year to a more conservative 15% revenue growth compared to 2020, whilst we are still working on increasing the number as we speak. We are however seeing an increase in some of our component and transportation costs driven by the shortages and we have impacts caused by power shutdowns in China. We are working with our customers on a case-by-case basis to minimize the potential impacts on margins. As announced on September 22nd, our new production facility in Germany successfully ramped up to this year's capacity. and we are shipping several of these volumes as plans to our U.S. EV customer. This will be followed by a production line extension around March coming year, where we integrate the equipment, which is currently used in China, into that line. From that point in time onwards, all production for the U.S. EV maker will be in Germany. On top of that, we are planning the new production line for our new European high-volume customer. We announced that design in late last year and expect production ramp-up in 2023. Further, we incorporated a new entity in the Philippines via Optronics Philippines Inc. to provide customized platform camera solutions from design and development to process and testing and quality control. The camera design and development team reported previously to VIA Optronics GmbH would be integrated into this new entity. Coming back to the business award we received from the British EV vehicle company, I like to say that this is the third EV customer where we provide most of the cameras in the vehicle. On top, we are providing display touch solutions for this customer as well. In this case, VIA's camera solution will be applied as front, and rear view and e-mirror cameras in different car models the start of mass production for over 2 million units is planned through 2020 through 2025 is planned to begin in 2022 next year looking ahead i'd like to spend a few moments talking about our key initiatives We are focused on further executing on our strategy of driving our sales in the auto and industrial end markets by leveraging on our LCD optical bonding sensor and camera capabilities across the board to deliver system solutions. The macroeconomic background remains uncertain and challenging. Therefore, we are undergoing production improvements to cost down in order to improve our margins whilst we are working with customers for price adjustments to drive profitability, even with the given uncertainties. We will continue to evaluate M&A opportunities focused on electronic system design. However, as we have all capabilities now in-house, the focus is on integrating the new team members and overcome capacity shortages by outsourcing capacities when needed. Last but not least, I'd like to mention that we continue to execute our strategy with the goal of moving towards the 500 million annual revenue target within five years under the assumption that the current market constraints will be resolved. We are pleased with the execution we have made so far and look forward to updating you on our progress next quarter With this, I will now turn the call over to Markus to present our third quarter financial results and fourth quarter and full year 2021 outlook in more detail. Markus?
spk01: Thank you, Jürgen, and good morning, everyone. This is Markus Peters, CFO of VRtronics. I'm very pleased to review VR's third quarter results. I start by reviewing our financial and operating performance for the third quarter and then provide our outlook for the fourth quarter and full year 2021. Total revenue in the third quarter of 2021 was 49.4 million euros, up 13.3% from 33.6 million euros in the third quarter of 2020. Total display solution revenue grew 17.3% year-over-year to 42.1 million euros in the third quarter, driven by strong demand in automotive and industrial markets. Display solutions revenue represented approximately 85% of total revenue in the third quarter, compared to 82% in Q3 of 2020. We continue to execute on our strategy to increase our revenue in automotive and industrial applications. Within our display solution segment, revenue from our automotive customers grew 137% year over year in the third quarter and accounted for 42% of revenue compared to 21% of revenue in the third quarter 2020. Revenue-related, to the industrial revenue related to the industrial and specialized applications and market grew 11% year-over-year and accounted for 41% of revenue compared to 43% of the revenue in the third quarter of 2020. Our consumer revenue declined to 17% of revenue from 36% of revenue in the third quarter of 2020. Total sensor technology revenue was €7.3 million in the third quarter of 2021, down 5.2% from €7.7 million in Q3 of last year. Sensor technology revenue represented approximately 15% of total revenue compared to 18% in Q3 of 2020. Sensor technology revenue was down slightly, mostly due to supply chain disruptions. Total company gross profit margin for the third quarter of 2021 was 13.8%, compared to 14.4% in the third quarter of 2020. Our display solutions gross profit margin was 11.6% in Q3 of 2021, compared to 14.2% in Q3 of 2020. The decline was primarily due to higher component and logistic costs, which we are working on to mitigate. Our sensor technology gross profit margin was 26% in 2021, compared to 16.9% in the third quarter of the previous year. The increased cross-profit margin was again driven by enhanced utilization of our existing production capabilities. Turning to expenses. Total operating expenses in Q3 were 7.1 million or 14% of total revenue, which compares to 4.7 million or 11% of the total revenue in the third quarter of 2020. This increase was driven primarily by further strengthening of our R&D and corporate capabilities to support our growth plans, especially in the automotive market. In line with our expectations, research and development expenses were 1.5 million, or 3% of total revenue, in Q3 2021. which compares to 0.4 million or 0.9% of total revenue in the third quarter of 2020. EBITDA in the third quarter of 2021 turned positive at 1.1 million euros compared to a positive 3.5 million euros in the third quarter of 2020. The EBITDA was supported by revenue growth, certain price increases, and one-time effects recorded a net loss in the third quarter of 0.5 million euro which compares to a net income of 1.5 million in the third quarter of 2020 based on a weighted average share count of 4.53 million shares in the third quarter of 2021 This translates to a basic and diluted net loss of €0.19 per share in the third quarter of 2021. Turning to the balance sheet, we ended the third quarter with cash and cash equivalents of €54.8 million and total debt of €31.9 million. Now, I would like to share our outlook for the fourth quarter in the full year 2021. For the fourth quarter, we expect total revenue of 40 to 45 million euros. For the full year 2021, we still expect a revenue growth of about 15% compared to 2020. The company is working on mitigating the unexpected impact of shortages in certain segments of the industrial and consumer markets. These projections will depend on the development of global component shortages as well as constrained global shipping capacity, which may also influence the demand of VIA's products. Our outlook also reflects continued uncertainty related to the ongoing impact of COVID-19. Overall, we are focused on the many opportunities ahead of us, particularly in the automotive and industrial markets. This concludes my remarks. I will now turn the call back to the operator to open the line for questions. Thank you very much. Operator.
spk03: Thank you. 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. touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're 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 the line of Anthony Stoss from Craig Hallam. Please go ahead.
spk04: Good morning, Juergen and Marcus. Related to the component shortages, can you perhaps give us more detail on where those are? Is it on the cold chain side of the business or is it another side? And you mentioned you're moving to mitigate that. Can you maybe help us understand the mitigation costs? And then as a follow-up for Marcus, maybe you can help us understand where you think operating expenses will be for the December quarter.
spk02: With regards to the shortages, basically the main thing is coming from one of our suppliers providing coating for glass. They have reduced the capacity during the shortages and they have been able to build it up again. And they are right now actually trying to overcome that, but they haven't achieved it. So we still hope that this will work out. This is why we still hope that we can improve it, but of course there is no guarantee. That's the main driver for this current short-term impact. And for the second part of the question, maybe Markus?
spk01: The cost structure we are seeing right now will be somehow the same. We'll have some improvement in outsourced costs, which will not occur in the same magnitude in Q4. And the operating expenses will be, of course, net of one-time effect.
spk04: Okay. Then maybe as a follow-up, Juergen, again, on the cold-form glass side of the business, can you update us on the sales funnel, you know, What kind of, you know, the amount of design leads you would expect? I know it's a longer sales cycle. I'm just curious to hear more about how that's going.
spk02: On the code form, in general, automotive is not only code form. We are basically right now in lots of discussions. We just recently, I think just in the last two weeks, we had two new requests from two new customers for very large projects. I shouldn't say new customers. It's basically old customers. where we are right now working on quotes. So that traction is overall pretty good. And the visibility that we have is getting better and better. A lot more people are starting to know us now. A lot more people are talking to us. So that's overall a very nice development. Maybe coming back one more time to this shortage thing. So I'd just like to make clear that we have everything in-house. We are just getting the bits and pieces and coming to build as we wish. The other thing I'd like to mention is that we are mitigating the impact of the shortages with customers and internally, but you cannot really do that as quick as you want. So we hope that we can hopefully finalize All of that, if there are not any more changes.
spk01: We will not reject additional turnover that may occur over the rest of the year and also not in the future. Are we actually pushing for that? Actually, we are pushing it, yes.
spk04: Okay. And then, Juergen, just so I'm clear, your comment about moving equipment, are you moving the cold-form equipment out of China into your German facility, I believe you said, in March? Did I hear that correctly?
spk02: Yes. So we are currently over-producing in both sites, just to be sure that we have a buffer for that period. The equipment is planned to arrive in, I think, end of February, and then will be integrated in March, and then we run full capacity from probably April. This is the current plan.
spk04: Is there another coating supplier? I'm sorry to ask so many questions that you can contact. Instead of having a single source, Can you reach out to other coating suppliers of the glass?
spk02: No, unfortunately not. This is a consumer project and the coating supplier was set by our customer. So we have asked them that too, but they are working on that as well because for them it's also a not so nice impact. Maybe it works out, but this is too new. So I would hope the same thing, but it's not yet confirmed. Okay.
spk04: Thank you. Appreciate it.
spk03: Yeah, thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your touchtone telephone. There are no further questions at this time, and I would like to hand back to Juergen Eichner for closing comments. Please go ahead.
spk02: Well, thank you, and thanks, everybody, for joining the call today. As I said before, we are excited about the many growth opportunities ahead of us and are focused on the key initiatives that I aligned and discussed in my prepared remarks. Now, we look forward to updating you on the process, on the progress next quarter, and hope to hear you all again early next year. Thanks very much.
spk03: Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.
Disclaimer