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.