Ams Osram Ag Unsp/Adr

Good day and welcome to the AMS Altram Q126 Results Credit Investor Q&A call. My name is Regina, and I'll be your EverCall coordinator. The format of the call includes prepared remarks from the company, followed by a question and answer session, at which point attendees will have an opportunity to ask questions live. Attendees are also welcome to submit questions in writing via the Ask a Question button found on the upper right of Brazil Roadshow. At this time, I will turn the call over to Juergen Werbel of NMS Software. He may now begin.

Hello. Good afternoon, everyone. Good morning to the YATS. If you're already up, this is Juergen speaking. Welcome to today's call on our first quarter 26 results, specifically for credit investors. With me is Rainer, our CFO, who will walk you through the Q1 earnings call presentation. Brian, the stage is yours. How did we do in Q1?

Yeah, thank you, Juergen. Good afternoon or morning to you. Yeah, how did we do? If you look at the share price, we obviously did pretty well. Now, we quickly go through the presentation that started with page three. Overall, we delivered a very strong first quarter and made further tangible progress towards our ambition of becoming a focused digital photonics powerhouse. On a like-for-like basis, our semiconductor core portfolio grew by 9% year-on-year, clearly underlining that our strategic focus is the right one. Group revenue came in well above the midpoint of our guidance range. Adjusted EBITDA reached the upper end. The time-wind momentum continued unabated across all end markets. From a digital photonics perspective, we achieved two important milestones in the quarter. In the first one, we are in the process of extending our portfolio optical components that are decisive for the system performance of AI-enabled augmented reality smart glasses covering key functional building blocks. And second, in iPhotonics, we signed a development agreement for highly parallel microemitter array-based so-called slow and wide optical interconnects targeting hyperscaler AI data centers. In parallel, we advanced on execution topics The simplified transformation program is well underway. Our balance sheet, the leveraging plan, progressed upside. The sale of the entertainment and industrial land business to Vigil closed in early March and cash proceeds were received. The divestment of our non-optical sensor business to Infineon remains well on track with unchanged timing for mid-year 26. Finally, we delivered healthy free cash flow in Q1. It's expected divestment proceeds to offset the seasonally high interest payments that took their core in the first quarter. Now let's look at the details on page 4. T1 performance came in stronger than initially expected. Group revenues came in with 796 million euros, well within the upper half of the guidance band. And adjusted EBITDA reached 16.5% at the upper end of the guidance, driven mainly by the wide division and a very strong automotive lens performance. Year-on-year revenues declined slightly, entirely due to the weaker US dollar, with a top-line impact of roughly €50 million. On a like-for-like basis at constant currencies, the group would have grown by approximately 8%. Adjusted EBITDA declined modestly year-on-year, solely due to the deconcentration of the specialty lands business, despite the APEX headwind. And then slide 5. OS. held up very well in the typically soft first quarter. Revenue fell almost flat quarter-on-quarter. We experienced supply constraints in selected product lines due to the short-term order increases. Without those, even a sequential growth would have been possible. Margin declined sequentially due to higher roll prices, and year price downs affected general first and FX effects. However, it was two percentage points higher year-on-year, reflecting higher production volumes that are not fully visible in reported revenues due to the weaker US dollar. The CSAs delivered a solid performance in the seasonally weakest quarter. Results were driven by continued strong demand for custom-centered products in consumer handhelds and a recovery in industrial and medical. Revenues were slightly lower year-on-year solely due to the declining contribution from excess non-core portfolio activities. Profitability followed typical revenue fall through dynamics, however, but down year-on-year, which due to higher R&D expenses upon growth projects and ethics have went from south. Lamps and systems again delivered a very strong quarter. Aftermarket demand remained elevated, including short notice orders following financial difficulties of a competitor. Special lamps contributed for only two months, because we sold them. The decontamination explains why reported revenues did not increase year on year. Strong production loading in Q1 supported profitability. Overall, it was mostly a strong order across the portfolio. And then on slide six. Adjusting for the weaker dollar and the exited non-core portfolio contribution, the clean core portfolio semiconductor grew 9% year on year. portfolio is now largely one-done, with only residual contributions to the order of €10 million contributed. Looking at the markets, automotive was broadly set versus typical seasonal slowdowns. After a lackluster start early into the year, we saw a clear ordering uptick in February and March. Given the declining underlying media production outlook, we interpret this as partial restocking after a prolonged period of very lean inventories combined with some level of precaution due to the turbulences in the Middle East. All regions performed sequentially better except China, where end market demand remained softer, and competitive intensity is elevated. Industrial medical showed a clear recovery. Horticulture had a seasonal low point, but professionalizing demand was solid. Auto intake improved materially, and auto patterns at the end of the quarter point to a solid seasonal upswing into Q2. Consumer follow typical seasonal patterns sequentially. Year-on-year, the decline is explained by FX and the fade-out of non-core portfolio elements. Now, slide 7. Q1 is typically the weakest quarter for design wind activity, yet momentum remains solid. Total design winds amount to around 850 million euros. Naturally, the sunwinds are geared towards automotive, but the other verticals also contribute as well. In our classic semiconductor core business, automotive remains the backbone, with triple-digit million-euro contributions across the portfolio and strong momentum in forward lighting. Industry showed very good traction, particularly in professional lighting with customers in the US and Europe, while horticulture performed materially better year on year. Consumer continued to see recurring sensor design wins in Android-based smartphones, particularly in system management. On the digital photonics side, progress was equally encouraging. The buyers continued to add platforms, taking the number of awarded platforms to well above 60. An interest in new designs remained strong, especially in China. Augmented reality, several of our existing components, such as ambient light and spectrum sensors, are already designed into smart glass models available in the market. AI Photonics' product development for micro- and middle-aerial highly parallel AI optical interconnects has started. And we are not doing this alone. We signed a collaboration agreement with a strong AI infrastructure partner. We will now look at these digital photonic themes in more detail, turning to slide 8. Augmented reality smart glasses are a key digital photonic growth theme. While the category is still at an early stage, adoption is accelerating even with today's limited functionality. AI is the game changer, making these glasses potentially the midterm replacement of all smartphones. Some of our sensors and LEDs are already designed into several commercially available smart glass models. Our current and future portfolio covers key functional domains. Being health and well-being. Sensors enabling measurement of parameter such as melatonin levels by blue light heart rate and UV exposure. Privacy and camera performance. Spectral and thick sensors as well as high performance LEDs. And then, probably most important, the display engine. Today, our LEDs illuminate all cost displays. Going forward, micro-LED arrays can enable substantially higher brightness, resolution, and power efficiency. World sensing comprises gesture and 3D time applied sensing, HMI. Today, we supply our proven proximity sensors. Tomorrow, we have a super-tiny optical force sensing buttons in store. And eye-tracking can be done with our integrated optical sensing solutions. This illustrates our strategy of focusing on decisive system components based on our core technology. Content estimates measure vary depending on volumes, lifecycle stage, and customer implementation choices. For this, we see content potential between 50 and 100 gigabytes per device which underpins the triple-digit annual revenue opportunities we outlined when launching our digital photonics strategies. Now onto our next highlight of today, turning to slide nine. Our progress in AI photonics is accelerating. I have three slides for you. First, where our product will sit in a data center, Second, how do we fit into the architecture? And third, which components are we targeting? We believe that the so-called slow and wide optical interconnects based on highly parallel microemitter areas can play an important role in future AI data center architecture. Though slow is relative, as we are talking about 8 gigabit switching speeds and hundreds of parallel channels. Initially, the focus is on shorter distance scale-out interconnects between racks and scale-up connections within racks, replacing copper over distances of up to several tens of meters. Over time, chip-to-chip interconnections, for example, between the GPUs and high bandwidth memory, could become addressable as well. A really great market potential for us. No slide 10, probably a bit more complicated, but very important to distinguish between integration concepts on the top and the optical engine technology itself. On the integration side, today's solutions on the upper right rely on pluggable receivers or active optical cables. with energy consumption of up to 30 pJ per bit, so quite high. In these solutions, not only the longer copper traces, but typically also signal-shaping chips consume quite a lot of power. And in the center on the top, near-port optics can reduce this to roughly 5 to 10 pJ per bit. The optical engine moves much closer to the area. And then finally, on the left, the co-packaged optics, CPO, promises further reduction towards 1 to 5 picojoules per bit over time. The optical engine moves as close as possible to the ASIC. Or simply, the closer the optical engine hits to the chip, the lower the electrical losses and the associated thermal load. The slide illustrates this through distance comparisons. Independently of the integration approach, optical engines can be implemented either as fast and narrow or slow and wide solutions. Fast and narrow is today's established technology based on Indian phosphate lasers, often EMLs, and silicon photonics integration concepts. We believe in future slow and wide architectures, highly parallel micrometer array, based optical engines that transmit light pulses at ship speed without the need for power-hungry serializers and deserializers. Key advantages include substantially higher bandwidth density, really low power consumption for this end, inherent redundancy through parallelism, one micrometer fills, no worries, there are enough panels for backup, an important consideration for hyperscale customers. Now on slide 11, On the left, you see our prototype, which helps accelerate the signing of a development agreement with our ecosystem partner, the leading AI infrastructure supplier. The table in the center illustrates the simplified technology state for highly parallel optical interconnects. In essence, you can think of the transmitter side, the receiver side, and the advanced packaging technology that glues everything together. Our current development focus is on the transmitter side, micro-lens and micrometer areas. Given our seamless and sensor capabilities, we are also evaluating opportunities beyond, on the receiver side. We will keep you updated as development progresses. Let us now look at the elected financials. Slide 12 generates 37 million a year free cash flow into one, which includes 90 million by restaurant proceeds. Cash inflow from the sales, especially LEM's business, was received early March. Operating cash flow at break-even, reflecting seasonally high interest payments on our senior notes. Higher, as you know, than a year ago after the 500 million tax loss summer. CapEx remained disciplined and well below our full-year guidance of 8 December 2017. With that, let us take a quick look at our simplified program that we launched with Q4 announcement on February 10th, and that is on slide 13. Last quarter, we reported that Reestablish the Base has delivered its savings one year early. The implementation of the remaining measures identified will continue. The Reestablish the Base program delivered 230 million euros of savings which is really a great success. February now, we launched a successor program called Simplified, which is a broader transformation program aimed at reshaping our operating model and delivering 200 million euros of additional annual savings by 28. All savings measures have been identified at 90% of the high maturity level. Cost, speed, agility are our guiding principle as we reshape our operating model. Implementation started immediately, and after just one quarter, INCEP already delivered five minutes eager of real life savings demonstrating this since execution continuity. Now let's look at liquidity and capital structure on slide 14. If you know that very well, if you run the interest payments for senior news with you, With the cash proceeds from the sale of the specialty lands, the free cash flow was positive, such that the cash on hand position only reduced because we paid back €200 million nominal of the convertible note, and the cash now stands at around €1.3 billion in this month. With that, the liquidity position closed accordingly at €2 billion. which is the cash revolving credit facility and bilateral lines. The sell and leaseback moved up a little with currency swings in the ringgit and with the quarterly interest accrual. With that, I'll just zoom in on the coverage of the upcoming short-term maturities for important slides, slide 15. So we have 1.3 billion euro cash on hand, and when we enriched that with the 570 million euro from Infineon, It's closing somewhere mid-year. Then the amount is close to €1.9 billion in pro forma cash. This company will cover all near-term maturities, and that is the outstanding 27 convertibles, which now stand at €560 million. We received the money from Infineon. We have 120 days to offer the amount related to guaranteed assets as part to note holders, approximately €130 million. And second, the business needs in gray for the transition effects in 26. Now, what is that? That is low adjusted EBITDA because we're selling businesses and we have friendly costs that we will start cleaning up after it is closed. High transformation costs from the Simplify program. We will try to or we will have quite some cash outflows this year for Simplify and then we will be repaying $100 million in customer prepayments this year and we also will reduce factoring by about €100 million. Now, excluding the disclosure proceeds, expect something triple digitally negative. putting as much as possible into 26, starting clean into 27. By 27, free cash flow will be substantially better. In that business remains strong as we see today, we expect the free cash flow to move to positive territory. Excluding disposal proceeds, and even that we need to repay a similar amount of customer prepayments. Now, and third, it will cover The tendering of the auto minority shares after the final verdict, we have assumed that for the second half of the year, so it could slip out. And after all of that, that should leave us with around 500 million Euro in cash. And now, this is, I think, very important when you look at that slide. All upcoming year-term maturities are taken care of. We have the time to build them. Thinking ahead, this allows us to focus conceptually on optimizing the cost and maturity profile of our 2019 units. We will keep you posted what our plans are. Now summarizing, on slide 16, key one, is that again our revenue profitability guidance Semicore business grew 9% like for like. Pre-cash flow was positive. Completed re-service debate and started executing Simplify. In digital photonics, we continue to progress on a comprehensive component portfolio for AI-enabled smart glasses, giving us a content opportunity between €1,500 per smart glass and We initiated the product development of micrometer-based AI optical interconnects together with a commercialization partner. We also progressed and downshifted the leveraging, especially LAM's transaction close proceeds were received. The Infineon transaction remains on track. No changes to the indicated closing time limit of the year. And now finally, the outlook for the second quarter. We expect revenues between 725 and 825 million Euro. Suggested EBITDA around 15 and a half plus minus one and a half percentage points at the exchange rate of 117. Now the traditional auto lens business will show the usual seasonal slowdown in view of the overweight in the aftermarket. Remember all non-automotive business transfer to ratio. We still have 10 million Euro revenue in Q1 and 0 in Q2. That's obviously the 10 million reduction is part of the guidance. CMEs will make a step forward in Q2 more than typical seasonality. We see strong order intake and book-to-bill higher than previous quarters. Now, our full year 26 outlook remains unchanged. Group revenues modesty software given the divestment and the exchange rate impact. Adjusted EBITDA also around 15 and a half plus minus one and a half, seeming the FX at 117. Adjusted EBITDA will be negatively impacted for several runoffs. The divestment, standard cost, precious metal prices, particular gold and the other factors. Free cash flow. certainly well above $300 million, including the divestment proceeds. And in 2027, we see a path to positive free cash flow without counting any potential divestments, even that we still have to repay similar amounts, roughly $100 million of customer prepayments. And with that, we are happy to discuss your questions.

Thank you. We will now conduct a question and answer session. If you would like to ask a live question, please press star 1 on your telephone keypad to enter the queue. Or if you are joined by a web, please press the raised hand icon on the right side of your Deal Roadshow screen. And if at any point you would like to submit a written question, click on the Ask a Question button on the upper right of Deal Roadshow and submit your question. Our first question is a live question from Marco with Amova Asset Management. Marco, your line is now open. You may proceed.

Thanks for taking my question. Congrats on the strong set of results. I have a couple of questions. So, the first one is just on the RCS. Were you able to extend RCS? Because last time you got it for for the kind of extension, so you just put some color there. And the second question is on the one-off cost for 2026. I heard earlier you mentioning 100 mil. Could you just confirm if it's 100 mil or 150 mil for this year? And then the third question is just on the AI data center opportunity. When you start expecting to see sales, potentially, like if you just provide some color, and then also the follow-up will be the time, like what sort of time could you, like if you could just provide some time for the ideas. Thanks.

Bill, I'm starting with the one-off. Overall, we believe that the program will have one of roughly $150 million that we already booked some last year. A smaller portion, quite a bit, will come this year. And now I'm talking about the expense, right, booking the reserve. And there will be a bit more to come in the next year. Now, the other question is how much of that is cash out. And We believe that the cash out for the program this year should be somewhere between $50 and $100 million. Now, the revolver, I would say we are in very progress negotiations with the banks to extend that, find those steps. than the AI data center opportunity. Yeah, I think it's very exciting. It will certainly be before 2030, hopefully before 29. In the size of the opportunity, I mean, that is a bit of a difficult question depending on how much of the value we will add. just a meter or if it is more a system. It is certainly a three-digit million opportunity in 2030 and beyond with a gradual ramp. In case we would do more, we would do also the photodiode, we would do the driver, even the amplifier, then it could be obviously a much, much higher number. We're discussing with a lot of different partners now and there's a lot of different positions where we could play a role.

Just a quick follow-up in terms of, like, the development cost for this AI data center opportunities. Who would usually shoulder the cost? Would it be you guys or the client or could you just share that? Thanks.

Yeah, I mean, in the case now where we work with a partner, There we share the cost. We get NREs, but we are certainly also developing quite a few other things where we currently pay the cost ourselves.

Thank you.

Thank you, Marco. Our next question is from Laura with Samus West Investment Management. Your line is now open. You may proceed.

Hi there. Congrats on the great results. Thanks for taking my questions. Just a few, please. So regarding the senior unsecured notes, you said you'll keep us posted. I think previously you mentioned you would look to re-file these in sort of early 2027 when the call price steps down. Is that still sort of your base case, or are you potentially considering addressing these earlier? Then certainly just regarding the converts, for $130 million, I think you need to tender for – will you try and tender for more, or are you just going to leave the remaining portion outstanding up until maturity and then redeem them with the liquidity that you have? And then two final questions. I think previously you guided for $533 million. That was based on financial year 2025, where it reported with $608 million. So for 2026, should we expect this to be sort of lower because it's obviously the cost overhang that you mentioned from the investments. And then lastly, the coolant plant, if you could just give an update on any discussions you may have or timing or what do you think is possible there with regards to an exit. Thank you.

Yeah, Laura, thank you. Yeah, it was really good for us. Now, the senior nodes, we are obviously strategizing what options we have. 27 is kind of the base case, but we are certainly looking at those and kind of break even calculations. But we will talk about that when we have a conclusion. On the convert, it is, yeah, we have to make an offer of 130 as part. We will, yeah. And we already made an offer earlier this year at a bit lower price, 200 million were offered. We certainly want to optimize at what price we pay that back. I will probably make an offer, certainly not at 100. And yeah, if an amount, we will just let it then expire in September 27. On the EVTA, So, yes, there is a few things that are against us. The one thing that we said is the businesses we are selling, which is probably 75 million EBTA on an annual basis, plus the stranded cost, maybe 100 million together, and then we also have to have wind from the precious metals. On the other side, obviously, we also have a business that is developing nice, but it will be quite a bit lower, will be quite a bit lower compared to last year, and maybe it's a good idea to have a look at the consensus. Now, cool, and to update, yes, now on this two years, and a lot of parties look at it. We are not at the point where somebody made a concrete offer. We're still talking currently to a few interested parties. That's nothing that we would sign within the next few weeks, but we see that the momentum in the whole steam industry, particularly in the areas where companies might have interest in our facility, is picking up. So we remain optimistic that we will be able to resolve that.

Great, thank you so much. Maybe one follow-up, just with regards to the coolant plant. In terms of timing, you obviously said, like, not in the coming weeks, but you're confident to resolve this. So do you think, realistically speaking, it's more likely to be, like, a 2027 event? Is that fair?

Yeah, Laura, I mean, it's not fully in my hands, right? So we need a buyer who is willing to write a check. So I cannot give you... any additional details on timing other than that the feedback we are getting remains to be very constructive and that we are positive that one day we will get that check.

Understood. Very good. Thank you for your time.

Thank you, Laura. We have two written questions from Christian with BlackRock. The first question reads, on the FY27 FCF outlook, how much of this target depends on a successful refi of the SON29? Or can you achieve it with current coupons? The second question is on factoring. What is the current level of non-recourse factoring? And by how much do you plan to reduce usage of factoring?

I'm trying to understand the question. Yeah, go ahead, François.

Yeah, the first question regarding the free cash flow output, then obviously we're looking at refinancing the main part of our inbound plan, what we mentioned, and obviously we need also to have . So with the current coupon, obviously it would be a stretch to get there. That's the first question. Second question regarding the factoring. Currently, we are at 150 million roughly, and we mentioned that over the course of the year, we are going to reduce the factoring level by roughly 100 million. So that's basically also costs we have to pay, and that will also reduce our interest costs going forward.

Thank you. Our next question is a live question from Luke with PPM America. Luke, your line is now open. You may proceed.

Hi. Good afternoon, and congrats on the results. I wanted to ask about the AI optical solution. Is that being contemplated for a CPO solution? And could that potentially be used in kind of NPO as well?

Yeah, this is Juergen. I can answer that. I mean, as we tried to illustrate in the slide, in principle, this can be used in various integration opportunities that are shown in the top slide. We can't go into very specific details right now, but what I can say, it's probably not going to be a CPO solution at the beginning. So the customers we're currently working with probably looking at different integration opportunities.

And thanks. Following up on that, I think you mentioned you are in discussions with other parties. Are those parties at a similar party ecosystem as your current partner? I know I think I was asked on the earnings call, you can't specify exactly who it is, but are you getting inquiries from, like, different areas?

Thanks for the appreciation that we cannot be very specific who it is and also not give too strict guidance that you might be able to single out. But what we can firmly say is it's not only on a similar integration level that we are speaking, but basically we're speaking with everyone. because, I mean, all these optical interconnect technologies, they affect various levels of the AI ecosystem and the infrastructure. So we're not restricted to one level of integration, but there are many discussions going on.

Thanks for the color there. And then lastly, you did mention, you know, some supply constraints on the optical side. You know, what is the magnitude? I think, you know, optical would be positive sequential if you had those resolved. What's the magnitude of those supply constraints, and when should we see those resolved?

Yeah, that were on some automotive products where we were, so automotive emitter products, automotive LED products on the traffic side and we've got basically a lot of surprise orders and as Aldo mentioned earlier in the call today for the equity analyst that we probably also saw a little bit of ordering driven out of fear with all the Middle East crisis going on. And then we couldn't react as fast. So you asked about the order, probably a couple of million, as we indicated in one of the comments. That could have pushed OS even in a growth quote unquote.

It's not lost business, right? It goes into backlog and then it gets shipped with a slight delay. I mean, when customers come with these short-term orders, I mean, that's what sometimes happens. But Actually, we were surprised by the amount of orders, and, you know, there certainly are areas we need to expand the capacity.

That's it for me. Thanks for the call, and I'll wrap up the results.

Thank you, Luke. We have a couple of questions from Julianne with margins. First is, could you please quantify the impact of FX headwinds on the semi-segment EBITDA? And could you please quantify the impact of the gold prices at group level?

Yeah, sure we can. I mean, the impact of the gold price group level, we said that in the last call, we expect that headwind this year to be around 60 million euro year-over-year headwinds. Yeah, we currently see that the gold price has come down a little, so it might be a little less. And first question, the impact on FX, so let's show why only on the semi-segment. So in a simplified way, we typically say that one cent for the full year is around 20 million of revenue. And the fall through of that is kind of for the portion is somewhere 5, 6 million or so percent. And yeah, and that is true for all segments together.

Thank you. Once again, ladies and gentlemen, to ask a live question today, that is star one on your telephone keypad to enter the queue. Or if you have joined via web, that is the raised hand icon on the right side of your dual roadshow screen. And if you would like to submit a written question, that is the ask a question button on the upper right of dual roadshow to submit your question. Our next question is a follow-up question from Marco with Amova Asset Management. Your line is now open.

You may proceed. So just one quick clarification. So your smartphone business and exposure to manual shortage, earlier on the call, you mentioned that the impact is minimal.

Is that correct? Yes. That is correct. I mean, yes, he always reads that the memory shortage reduces smartphone sales, but kind of is our product very overweight in the high-end models, and we haven't seen any impact of the memory shortage on the high-end models, so we really don't see all the staffing.

And just in terms of numbers, it's roughly 600 now.

Yeah, well, take the consumer share on the semi side, and they are probably the high majority is from smartphones, but there is also a decent share of wearables and then a long tail of smaller ones, but it's certainly fully overweight on the smart phone side.

In terms of the coupon that you're looking to lock in when we buy for the 2029 bonds, is it fair to assume that you're looking for 5% to 6% coupon?

As we said, I mean, we haven't taken a decision when to go ahead. And then if we were to decide, we would certainly test the market. and see what we can get.

Okay, thanks. I'll .

Thank you, Marco. Our next written question is a follow-up question from Julianne with margins. In 2027, do you expect to receive a large inflow from customer prepayments similar to what it received in Q3 F-1-24?

The customer prepayment thing in 24, that was a one-time thing. Now we have to pay it back between D-126 and D-128. That is not something that we see frequently in our business.

Thank you. And once again, ladies and gentlemen, to ask a live question. That is star 1 on your telephone keypad to enter the queue. Or if you have joined BioWeb, please press the raise hand icon on the right side of your video logo screen. And if you would like to submit a written question, click on the ask a question button, type in your question, and submit. We will pause here briefly to allow any more questions to generate. It appears there are currently no further questions. Handing it back to Juergen Rebel with AMS Astrum for any final remarks.

Thank you, operator. Thanks, everyone, for dialing in, for the interest and the questions. If there will be any further questions, reach out to us at Investor Relations. With that, we wish you a great day. and speak to you soon or later next quarter. Thank you very much.

This concludes today's call. Thank you and have a great day.