Aixtron Se Unsp/Adr

The conference is now being recorded. Good afternoon, ladies and gentlemen, and welcome to Extran's conference call regarding the full year 2023 results. At this time, all participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. Let me now turn the floor over to Carsten Wehle.

Yeah, thank you very much, Beatrice. Good afternoon from Aachen. Welcome to iXtron's full year 2023 results call. I'd like to particularly welcome our CEO, Dr. Felix Gravert, and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call, as a housekeeping remark, is being recorded by iXtron and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of the disclaimer that you find on page two of the presentation document as it applies throughout the conference call. This call is not being immediately presented by webcast or any other medium. However, we intend to place a transcript on our website at some point shortly after the call. And with these introductory remarks, I would like to hand over now to our CEO for his opening remarks. Felix, the floor is yours.

Thank you, Karl. Let me also welcome you all to our full year 2023 results presentation. I will start with an overview of the highlights of the year and then hand over to Christian for more details on our financial figures. Finally, I will give you an update on the development of our business and our guidance. Let me start by giving you an overview of the highlights and key business developments of the year on slide two. The most important messages of the day from my viewpoint are, in 2023, we have successfully continued our growth trajectory. We have delivered on our 2023 guidance and achieved a very strong fourth quarter result. We have successfully launched the G10 series for all material systems that we are addressing. We expect further growth for 2024 and strong further growth for 2025. The 2023 revenues have grown 36% year over year versus the already strong fiscal year 2022 and have reached 630 million euros. This results in a strong gross margin of 44% and at the bottom line, an EBIT margin at 25%. As indicated, With our Q3 call in October, we have generated an outstanding Q4 2023 result. Extron played a decisive role in driving the dynamics in the market with the launch of the G10 product family. In just one year, we have renewed Extron's entire product portfolio, starting with the introduction of our G10 SICK, continued with the G10 ASP in April 23, and concluded with a G10 GAN in September 23. All members of the G10 family take the strong performance of the already very successful predecessor product to the next level. With its dual wafer size capability, the G10 SICK supports the transition of SICK power electronics to 200-millimeter wafers. The G10 SICK market entry was met with great response from our customers, such that this product makes already about 30% of the full year revenue of 23. This has also demonstrated the capability of the external organization to scale new products into highest volume very fast. Over the course of 2023, we were able to further improve the already strong performance and productivity of this system, such that the GTEN-SICK now sets standards in terms of performance, stability, productivity, and unit cost. The G10 GaN, on the other hand, has triggered a new era of high-volume production in the field of GaN power semiconductors. Not only does the system offer further improvement and performance, but above all, it addresses the need of modern mass production. increased productivity, reduced space consumption, longer maintenance intervals with reduced maintenance effort, and a further reduction in production cost per weight. Finally, the G10 ESP sets new standards in terms of stability and performance in the gallium arsenide material system. It is the first system to enable robust, large-scale production of micro-LED and laser components. In doing so, we have remained true to our original market of electronics. This system has set standards, particularly in the areas of particle reduction, automation, and wafer size. Multiple customers with innovative applications have already chosen this system. In addition to the sales achieved, the awards received from Coherent, TI, TSMC, and OnSemi are proof cases of excellent focus on customer orientation. We have grown from being a specialist into a reliable, high-volume provider in the modern semiconductor industry. In recent years, we have steadily increased the company's level of maturity in all areas, from quality to production to service. At the same time, we have optimized our internal structures and processes to achieve scalability for further growth. I am very pleased that the era of SICK and GAN power electronics has been the strongest demand driver in 23, representing about 80% of our equipment order intake for the year. This strong development is a result of further capacity expansion activities of our customers, but also great strides we've made in improving the uniformity of our G10SIG multi-wafer system. Also in Q4, the biggest demand drivers were our systems for SIG and GAN power electronics. In addition, demand for tools for optoelectronics and LED, including micro-LED, have rebounded in the fourth quarter after week first nine months. Demand for our equipment has remained very strong resulting in an order intake of 641 million, up 9% year-on-year, driven by the strength of the growth of the end market our customers are serving. As a result of this, we can report a strong order backlog of 354 million euros, up 1% year-on-year. Concluding this short highlight section, I would like to express a strong gratitude to the entire EXTRAN team that has made all these achievements possible in 2023. With this, I will now hand over to our CFO, Christian Dunninger. He will take you through the full year 23 financial. Christian? Thanks, Felix, and hello to everyone. Let me start with the financial highlights of our income statement on slide three. As Felix mentioned, revenues in 2023 were up 36% to 630 million euros, with 74% of equipment revenues coming from power, 12% from optoelectronics, 11 percent from LED, and a 2 percent contribution from R&D tools. Gross profit was strongly increased by 43 percent year-over-year to 279 million euros. EBIT at 157 million euros are 50 percent increased, and net profit at 145 million was up 45 percent year-on-year. Q4 23 revenues at 214 million euros even bet a very strong level of 183 million euros in the same quarter of last year. As Felix mentioned, orders in the quarter and the year continued to be strong, and our backlog was slightly up, fueled by the mentioned strength in demand. In 2023, we've made great progress on profitability improvements with a two percentage points increase in our gross margin versus 2022, which came in at 44% and an EBIT margin at 25%. At the same time, we have decided to increase our invest into R&D in the year 2023 to a total of 88 million euros, driving OPEX to 122 million euros. In 2024, you will see another increase of R&D expenses by around a mid-single-digit million-euro number before in 2025 it will go back again to the level we have seen in 2023 or even below. This is driven by the efforts to complete the G10 series and to start work on the next product generation in parallel. SG&A, on the other side, will remain flat in 2023. In 2023, we again utilized tax loss carry-forwards and capitalized some additional deferred tax assets in the amount of 7 million euros due to the expected future profits. This reflected in an effective tax rate of 8%. For housekeeping for modeling assumptions, we still recommend to apply a tax rate of around 15% in fiscal year 2024. Now to our balance sheet on slide four. We ended the year 2023 with a total cash balance, including other financial assets, of 182 million euros, which was below the 325 million euros last year. There are a number of factors driving this decrease. First, we've seen, again, an increase in receivables due to the disproportionately strong sales contribution in the last quarter, especially in the last month. These receivables will be collected in the first month of the year. Then we have seen the increased capex for the construction of the innovation centers. Advanced payments received from customers were flat year over year at 141 million euros. Down payments represented about 40% of order backlog. Inventory levels at the end of 2023 went up to 394 million euros compared to 224 million euros at the end of 2022. This is the result of our strategy to load the supply chain early enough to secure on-time delivery of our products despite tight supply chains. And this was very effective in the years 21 to 23 and has secured us numerous orders even in very competitive situations. Now that we see that global supply chains are relaxing, we are adjusting our strategy and reduce buffer stock. Based on this, we target a reduction of inventory levels throughout 2024. As a consequence of all of these factors, free cash flow in 2023 was negative at 110 million negative compared to 8 million euros in 2022. And with that, let me hand you back over to Felix. Felix? Thank you, Christian. Now let me give you an outlook to what we expect in 2024. First of all, we continue to work on our new series, G10 product generation. We have successfully launched these products, and we received strong customer pull for these products. In silicon carbide power, the G10 ZIC makes already the vast majority of our revenues in this material system. In gallium nitride, most of our existing customers have switched repeat orders to the G10 GAN. And in gallium arsenide, customers are testing and qualifying the G10 ASP. We can already today, a few quarters after the launch conclude that the G10 series is very successful and fully meets even exceeds our expectations. Furthermore, our customers bring many ideas for further improvement or enhancement of these products to us, such that the development work on the G10 series continues in 2024. At the same time, we are starting the work on the next generation of products in Paris. This allows us to secure our strong market position in the near term and also lay the foundation for further growth in the mid and in the long term. To have enough space for all of this, we have decided on the construction of the Extron Innocenter in our headquarter location in Herzogenrath. Construction work on this clean room facility had started in Q4 2023. And by now, large part of the outer shell of this clean room has been completed. The project is fully on track with respect to timeline and budget. Due to the effort going along with the construction of the InnoCenter and also the technical equipment needed for its operation, we expect CAPEX in 2024 to surge to around 100 to 120 million euros. In the following year, We expect CAPEX to return to the normal level of 30 to 40 million euros that you have seen in the recent past. Now, let's turn to the most recent developments in our end markets. Demand in gallium nitride is stable in 2024 on a very high level. We see that existing customers continue their expansion plans and additional new customers are entering the market. In many power electronic applications, gallium nitride is substituting silicon as the material of choice. And the growth is now carried from a very broad range of applications across many voltage classes, from roughly 100 volts to 650 volts, with some customers even working on higher voltage classes, such as 1,200 volts. In contrast, the recent developments in the EV market have led to a moderate slowdown in silicon carbide capacity expansion. Customers continue to pursue their ramp and capacity build-out plans, but many have somewhat reduced the pace and speed of the build-out. This leads to a moderate reduction in the number of silicon carbide units that we expect to ship in 2024 compared to the previous year. At the same time, we continue to gain market share in silicon carbide with new customer wins in the last quarter again. In 2024, we expect the market for lasers and micro-LEDs to continue at a decent pace, both making reasonable contributions to our revenues. In micro-LEDs, some customers plan small to medium-sized pilot lines. while high-volume production and real volume ramps still seem a bit further out. We all have read an announcement from one of the micro-LED players this morning. This announcement does not affect our plan for revenues for 2024 and 2025. Finally, in 2024, we expect red LEDs to kick back into the game. and make pretty sizable contribution to our revenues. We expect this to have an impact on the gross margin in 2024 in a range between one and two percentage points due to the lower cost margin profile of this application. So, overall, we expect that our strategy of serving various uncorrelated end markets with our system will be successful again in 2024. Based on this, let me now present our full year guidance for 2024 on slide six. As a starting point, we have asked ourselves how we can modify our guidance practice to even better guide the capital markets throughout the year. Many thanks for the input from some of you who have nudged us to review our previous practice. Now, what have we done? We have reviewed the guidance practice of other semiconductor equipment players, and based on that, we have decided to provide you with a revenue indication for the following quarter from today onwards. Why are we doing this? Our business follows some quarterly seasonal patterns. They can be big in timing effects between quarters, depending on whether shipments are reflected in one quarter or the next. We therefore want to make it clearer and more predictable to you that our annual guidance will hold up even if the next quarter, for example, may show some volatility. On the other hand, we have decided to drop the guidance regarding order intake. No other company in our comparison of guidance practice is providing guidance regarding order intake. And we have seen that the timing effects related to receiving large orders and the arbitrary quarter end dates have led to surprises and sometimes confusion. As you are used to, we are continuing to guide the new financial year revenue, typically in a range of 10% to 14% versus the guidance midpoint, like we did in the last six years. Gross margin and EBIT margin will be in a 3% range. This stays unchanged compared to the previous year. Also to be clear, as we continue to grow, our bandwidth of guidance in absolute terms will grow. This year, we are at about 13% bandwidth related to the midpoint, fully in line with the ranges of the last six years. With this, we expect revenues to come in at a range of 630 to 720 million euros. At the high end, this would be 14% growth compared to 23. We expect a 2024 growth margin of 43 to 45%, so somewhere around last year's level, and an EBIT margin between 24 and 26%. We expect the development to be driven by ongoing strong demand for power electronics and an additional volume from the remainder of our businesses. On Q124, in line with the usual seasonal pattern, sales in the first quarter of the year will be a bit slower than the annual quarterly average. In Q124, we therefore expect revenues between 100 and 120 million euros. This is significantly above the previous year's level, and we are expecting a good start into the year. For completeness, we have kept our US dollar-euro budget exchange rate, at which we record US dollar denominated orders and backlog at 1.15 USD per euro. This has just a minor effect on the orders and backlog, as only less than one-third of those are recorded in US dollar. We would like to give you in this place also an indication towards 2025. In 2025, we expect a continuation of our growth trajectory with a further significant growth in revenues. We expect in 2025 the next wave of silicon carbide power shipment and gallium nitride volume expansion to kick in. For now, we expect a stable demand in optoelectronics for 2025. This may, of course, change in case the micro-LED volume production gets started, which would add further momentum on top of what we have just discussed. With these exciting growth prospects, I'll pass it back to Carsten.