Elmos Semiconductor Ag

This conference will be recorded. Good morning, ladies and gentlemen, and welcome to the ELMOS Semiconductor SE conference call regarding the Q1 2026 results. At this time, all participants have been placed on a listen-early mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Dr. Arne Schneider, CEO.

Ladies and gentlemen, good morning, everyone, and welcome to the Elmos conference call for the first quarter of 2026. Thank you very much for your participation and your interest in our company. Ladies and gentlemen, Elmos had an impressive start into the new year with strong sales, improved profitability, and significantly higher free cash flow. In fact, as reflected in last night's ad hoc announcement, we have raised our full year 2026 guidance, driven by strong first quarter performance and sustained high demand for Elmos products. The impacts that may come from the allocation are not yet fully reflected. We will incorporate that piece of good news as it materializes step by step. Our strong operational execution since many quarters significantly improved cash generation and enhanced capital allocation. Combined with more transparency at our successful capital market stay in February this year, have driven a sustained increase of the Elmos share price in recent months. Year-to-date, the share price is up around 90%, bringing the company's market capitalization to nearly 3.3 billion euros. Based on this strong momentum, Elmos could potentially even qualify for inclusion in the MDAX, Germany's mid-cap index, potentially even at the next review in early June. If we were to make it, this would be a great achievement, given that only free float market cap counts for the index ranking. And as all of you know, free float is something we can always have more of. This is a great success story, and it is especially rewarding to know that many of you have been supporting us. on this exciting journey for such a long time. Let me come to the market update. I would like to briefly comment on the last threat by the US government to impose 25% tariffs on all EU cars exported to the United States. So if a consumer, a US consumer, chooses a US-made car, for example, a GM or a Ford, instead of an imported car, say, from Europe, this decision would actually have no major impact on Elmos, as our ICs are included in almost all brands and models globally. And that, of course, includes US models manufactured locally in the US. So, as long as the Americans continue to buy new cars, we will be okay. More generally, these stocking effects have more or less subsided. Inventory levels have largely normalized and in certain areas are now even below optimal levels. Customers have returned to order patterns that closely reflect the underlying structural demands, signaling a healthy end market. While some customers continue to order with shorter lead times, and it is our distinct advice not to do that, the overall visibility has improved and the demand environment remains solid. So our business is gaining further traction with improving momentum. Also important, the long-term growth trajectory for Elmos is firmly intact and highly attractive. We have highlighted these trends in detail at our Capital Markets Day end of February. The semiconductor content per vehicle continues to increase at a strong pace underpinned by powerful megatrends, including electrification, increasing ADAS penetration, up to autonomous driving, and the transition to software-defined vehicles. In this favorable environment, the analog-mixed signal semiconductor market offers attractive and sustained growth opportunities. With its strong positioning, innovation capabilities, and agility as a leading factors player, Elmos is very well positioned to capture this upside and deliver attractive long-term values. We are progressing also very well with the adaption of our China organization towards a full function entity. We have transitioned to a buy and sell model starting this year with China revenues being invoiced and shipped through our China organization. Our new local footprint strengthens customer proximity, enhances resilience, and creates strategic optionality in China. The acquisition of new projects. continues to develop very positively with promising new design wins in all regions and across all segments. Year-to-date, we already have captured around 40% of new businesses as targets for the full year. While we see an ongoing strong demand for analog-mixed signal automotive semiconductors, we anticipate a potential shortage in 8-inch wave capacity. Power chips for AI data centers are manufactured mainly on 8-inch wafers. So are all of the Elmos products. Due to the ongoing AI boom, foundries and also OSATs are prioritizing more and more these AI applications. This may very likely constrain automotive capacities and would lead to higher wafer and higher OSAT costs. We will closely monitor this situation and we will pass on allocation-related cost increases to our customers in a fair way as we did in the past. We think it is not unlikely that prices may go up in the second half of the year. You have seen the recent announcement by various semi-players to raise prices in 2026, some as early as April. Based on our experience in the last allocation cycle, 2021 to 2023, We see limited risk for Elmoth and view this as a potential upside from selective pricing actions and maybe even further share gains. Let me now continue with the financial highlights of the first quarter of 2026. Sales reached €152.5 million in the first quarter, growing by 20% year over year. Compared to the first quarter of last year, the weaker U.S. dollar had a negative impact on our Q1 sales by around 7 percentage points. So, FX adjusted, Q1 sales in 2026 would have been 27% higher than last year. Gross margin was 46.4% in Q1 2026, improving by 3 percentage points year over year. The increase is mainly due to the higher volume and cost improvements. Like in the previous quarters, gross profit was impacted by higher gold prices in assembly. However, despite the further price hike in 2026 compared to the average price of last year, we do not expect incremental cost impacts in 2026 as the higher price is compensated by our mitigation measures and selective hedging activities for gold. 24.7% of sales, Q1 OPEX, were on par with Q1 2025, but somewhat higher than the full year 2025 ratio, mainly due to higher personnel costs. Furthermore, in Q1 2026, we got no material R&D grants, while we ramped our new Bruno and Shanghai R&D locations, which added some extra OPEX burden. EBIT improved to €36.2 million in Q1 2026 compared to €25.6 million in Q1 of last year, mainly due to the higher gross profit net of higher APEX. As a result, the EBIT margin reached 23.8% in Q1 2026, almost 4 percentage points higher than last year. After three months, CapEx amounted to only €2.7 million, or 1.8% of sales. Despite the higher volume, we still have sufficient testing capacity available after our successful efficiency optimization and test time reduction programs. Due to low investments and the reduction in working capital, adjusted free cash flow climbed to a strong €40.7 million in the first quarter, or 26.7% of sales. Another significant improvement reinforcing our confidence that we are well on track to deliver even stronger cash performance than originally planned for 2026. Ladies and gentlemen, let me finish my presentation with a market outlook and our guidance for the fiscal year 2026. S&P projects in its APIC forecast a global production volume of 91.4 million new vehicles. down around 2% versus 2025. However, as we have highlighted many times in the past, growth in the automotive semiconductor market is largely decoupled from the underlying vehicle production. Instead, it is driven by powerful structural megatrends that continue to increase semiconductor content for vehicles in new cars. And in addition to these secular tailwinds, Elmos is also benefiting from a strong track record of design winds in recent years. which is supporting our continued outperformance relative to Pierce and securing our ambitious growth targets. As reported in the ad hoc announcement last night, we have raised our guidance for the 2026 fiscal year based on the very strong performance in the first three months and the continued high demand for Elmos products. With order momentum further improving, we now expect sales growth of 12% plus or minus two percentage points. So we have narrowed our guidance range, as you see, and raised the midpoint of our sales expectations. Based on the higher sales as well as further optimization measures, an improved operating EBIT margin of 23% to 26% of sales is now anticipated. In line with our updated sales guidance, we have tightened the range by raising the lower end and increasing the midpoint of our operating EBIT margin guidance. Despite the growth, capital expenditures, less capitalized development expenses, remain at a low level and are expected to amount to around 5% of sales, just as we said before. In addition, an even stronger cash performance is now expected with an operating adjusted free cash flow of 19% of sales plus or minus 2 percentage points. Let me also briefly explain why we now base our EBIT and free cash flow guidance on operating performance indicators. We announced early April that we will cancel most of our treasury shares to have maximum flexibility regarding potential future share buybacks. As you may know, under German law, companies are limited to hold, this is the first thing, or to buybacks. only up to 10% of their share capital. So it's not having more than 10% and not buying back more than 10%. It's a double threshold concerning treasury shares. So following the cancellation of our existing treasury shares, 3% about, after the AGM end of May, we will regain full flexibility within this 10% limit. As a result, the stock-based compensation must now be settled in cash until further notice. And the resulting accounting effects will not be recognized in operating results. We want to present a clear view of our underlying operating performance. Accordingly, our guidance for EBIT margin and adjusted free cash flow will be based on operational performance. So let me summarize. As promised, on our capital markets day in February, the year 2026 marks a turning point for Elmos. The headwinds from destocking are fading and we are returning to normal structural growth rates with improved profitability and higher cash flows. Elmorf has delivered an outstanding start to the year with strong growth across sales and EBIT and a particularly impressive improvement of the free cash flow, significantly above prior year levels. Based on this excellent first quarter performance and continued robust demand for our semiconductor solutions, we were able to further raise our already very positive outlook for this year. Ladies and gentlemen, electrification, ADAS, zonal architectures, and software-defined vehicles are of course not just short-term effects. This is a long-term structural growth phase with significant opportunities ahead based on a strong market position and innovative mixed signal solutions. As we continue to execute, convert design wins into profitable revenue, and deliver consistent strong cash, we are confident that our shareholders will also acknowledge the strength of our underlying fundamentals. So thank you very much for listening and your interest. I would like to open now the floor for questions.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please dial into the conference call. You will find the numbers provided in your confirmation email. Then please press 9 and the star key to state a question. I repeat, the combination to ask a question is 9 star. if you wish to cancel your question again please press three and then the star key but for now we are looking forward to your questions please press nine star the first question is from malta schumann from barbock research please yes good morning guys um first question is on the uh potential eight inch vapor shortage could you

provide a timing perspective when you expect the potential shortage to kick in and what that then means for potential price impacts that you might pass on to customers. Will that affect already this quarter or rather the second half of the year and is such a move already baked into your new guidance or would that provide kind of additional upside?

Yes, so we see a gradually increasing tightness throughout the value chain at the wafer foundries and also at the OZAPs. We have seen some competitors react to that tightness and also to raising prices. Some started as early as April. Some started at the end of April or beginning of May. I think usually the practice is adhered to that you give kind of a month's notice before the prices really go up. So I think for Elmoth there won't be a lot of impact in Q2. But, of course, we now have to look at the second half. As far as our guidance is concerned, we haven't baked too much into that guidance. Also, the guidance in Greece, we still think we should gain a little bit more clarity on the amounts. little step I mean we don't want to hold back but we we will gain a lot more clarity and and then kind of the other part of the good news once we are clear we will also report on it okay understood

Then on some P&L items, on the gross margin R&D, there has been no weak classifications, say development expenses cover the customer, so that have been reclassified from cost of goods sold to R&D?

No, it's very insignificant. You see R&D actually jumping a little bit in Q1. I think this is what you're asking, why is R&D so high? Yeah, well, two major things where we actually invest in. We invest in the Bruno site, which is a great team of very accomplished engineers that joined us from a direct competitor. And, of course, this is now coming in the Q1 into the first quarter of kind of full personnel and also other cost effects. The other thing is that we are building our China R&D center. The effect is even a little bit larger than the Bruno effect. And then the third thing is that we have no material contribution of any government or state money in R&D. And usually we We have with all these European programs, the IPSAI, for instance, we have significant contributions. So all that taken together, R&D is a little up. That is true. However, this will not be the run rate for the year.

Okay, good. And then on DNA, maybe a comment that was also a bit on the eye side. You have a million in DNA costs in the first quarter of the year. Anything extraordinarily included here?

No, there's nothing too much extraordinary. Also, the run rate, I think if I look at kind of the Q1 versus our internal projection for the year, our year projection is below. Yeah.

So basically when you combine SG&A and R&D for the full year run rate, it will be in line with our general, let's say, guidance of around 20% total OPEX below a cross-profit. So yeah, nothing spectacular going forward for the full year ratios.

Okay, good. And back to the shortage in the supply chain. Is there any part of the supply chain that could cause trouble for you?

It could cause trouble, but trouble good or trouble bad. So let's see what comes out of that. No, I mean trouble, of course, but we think that usually automotive in the end has a high priority and other parts of the semiconductor and electronics world should be cut off first because autos, of course, are very... high value products and semiconductors are of course key and in a lot of places we are of course single source so up to now there are no major issues but we will work ourselves through any shortages and if the time 21 to 23 is is any guide or any example things can be very excellent for us. Okay, good. Many thanks. Thank you, Mr. Schaman.

Thank you very much. Next question is from Abid Jadat, MWB Research. Please, go ahead.

Hi, good morning. I have just one question regarding the growth margin in Q1. and can we take this as the run rate and how much one was of this three percentage point effect from the cost optimization and efficient efficiency program yeah it's an interesting question i think it's a little bit above the run rate as i would expect it however with allocation coming it

this would not be including in my run rate considerations so kind of the it's it's above the baseline run rate but who knows what happens in a more and more allocation scenario where usually also gross margins not explode but kind of edge up edge up a little bit so we have higher volume that of course helps the gross margin we also have cost improvements. We ran a cost program last year. We had some staff. And this is, of course, reflected in that situation.

But also here, if I can add to that, for the full year, I think we also will be back to our general, let's say, operating model, 45%, give or take, cross-profit

But why is this? Can you quantify the moving parts here? Because you also reported like cost inflation, but still came in with like really impressive gross margins. So I'm just trying to understand the moving parts here.

I mean, we had our cost program and of course that helps. And it helps particularly when you get into your full year effects and everything is kind of dumped. Over last year, we first, I mean, once you decide for a cost program, it has quite a time lag to actually get people off your payroll. And that takes basically a year. And in Q4, we finally got people off our payroll, such that you now see results that are not too bad.

Okay. Thank you so much, Werner.

Thank you for your question.

Thank you very much also from my side. Ladies and gentlemen, just a little reminder to ask a question, please press nine and the star key. Next in line is Johannes Ries from APUS Capital GmbH. Over to you.

Yes, good morning. Big surprise that I was in line. Maybe three short questions from my side. I have to dial in. Therefore, maybe I have not everything with the discussion with . Therefore, if I maybe ask a question which was already answered, I apologize. Maybe first on the cash flow, what development we can expect for CapEx and working capital especially going forward? Is there a further reduction of working capital possible, or was it a big step in the first quarter?

Yeah, I mean, the first quarter is in two respects, a little kind of off-center in terms of what we expect for the year. I mean, we expect 90% free cash flow as percent of revenue. Now we're at 26 and a little bit. Two effects. You see very low capex. We expect CapEx to be at around 5%. So we're kind of three points below that full year expectation. So of course, that helps a little bit in the cash flow. The other thing is that we also see a working capital decrease versus the end of the year 2025. I think working capital is going to be interesting this year. We manage it down. We want to manage it down further. But I can't really tell you what happens, say, in Q4, which is, of course, also an interesting part of the year, given this allocation potential constraints. So we may see a more drastic drop in working capital if some waivers are so constrained that we go below desired inventory. we may see a little bit more if we somehow get some wafers and decide to take them regardless whether we need them now or only in two months' time. So I think in Q4, it's particularly hard to predict this year. I mean, cash will turn out brilliantly this year. That is clear already. But the working capital part could still go either way, or it could be it could be rational and positive for us either way. We cannot really say how the second half, in particular Q4, working capital will develop.

Very clear answer and explains the guidance you have done on cash flows. Very helpful. Second question, only a clarification question. You said you have 40% of what you are targeting on design wins, if I got it right. And if I remember right, you said you have the majority of the design wins you had already at the end of last year for your 2030 target. How much of maybe the part which was left at the beginning of the year, it's now already came in and how much you need on additional design to have maybe everything in your books with all maybe cautious regarding especially Chinese orders to achieve this 2030 target?

Yeah, we have kind of 15% that's left for 27 following. We wanted to win 10% of what's left, so 25% is left in total. 15 will be left for the next years if we kind of follow our plans. 10% we need to win this year. Of that 10%, we won 40%. So I think we are on a reasonable track to get that 10% in this year.

And it is also... If maybe more comes in, especially in 2027, which could partly get even revenues maybe in 2029 or 2030, that is maybe ice on the cake.

That is, of course, upside. That is true. Then maybe we reach our target a little earlier. I don't think we'll reach it some years earlier than it's just a little earlier. But that is, of course, true. There's potentially more to be had.

On the pricing component, in other areas, the pricing is going like crazy. I saw semiconductors, the growth was 79% year-over-year for the whole. Definitely the memory is the biggest driver of the pricing, but could be the more pronounced upside, or is it a little bit different in other motivators that we are partners and we don't, maybe are unfair in both directions?

Well, I think that for this year, most people are still single digits. Some may go into double digits. But mostly, with all the incomplete information there is, I would read a single digit into the market. but potentially adding something next year, which would then be very, very likely. Things like the numbers you mentioned, kind of 80% or doubling or so, I don't think so. I mean, we've seen in the past allocation, if that can be any guide to the future, that companies behave differently. And some, actually most, chose a very partnership informed approach that you passed on cost that you kind of made a lot of effort to make things possible for customers and yes this does not lead to you taking a financial hit but you are also not kind of taking real advantage of your customers there were a few exceptions and Maybe this time there will also be a few exceptions. I think, however, that the general market will maybe again follow that partnership approach where you don't take advantage, but you rather see that the world goes on in a positive manner for everyone.

Finally, on new end markets and new products, How have the things developed maybe in the recent weeks on the topic robotics? We hear from the one or other also very positive maybe expectations from customers like you also talked with your customer. And the second is on this crypto ships is very small crypto, quant-based crypto ship. Any maybe update? You have one in innovation price. How is the interest of customers on this product?

Yeah, well, this is... So on the robotics, actually, there's nothing in terms of big news to report since the CMD. It's a dynamic field, but it's not that dynamic that we have news kind of every month that are worth reporting. But we like where this thing is going. Yes, on the QRMG, so the quantum number generator, we won that innovation prize. We actually won three innovation prizes, I believe, in total over the last week. This is a beautiful little device. Of course, quantum computing is not big today, right? But it's kind of up and coming. So there's a lot of interest to discuss that device and to see where it could add layers of security that is actually quantum safe. However, there's no big serious ramp so I think we are at the forefront of innovation we are not in kind of these ramps this year these things are of course quick because cryptography is a dynamic field however I cannot report any quick revenue or design win right now it's a developing field

But again, it's not in the 2030 target.

No, no, none of it, none of it. We want, no, of course not, because it's not running serious and it's no design win. So by definition, it can't be in, and we would always be conservative. If we win something that is on top, and I mean, since doing something on top is kind of allowed, we think, we are very much running to customers and explaining why this is the best ship ever. But we wouldn't include it in our targets yet.

And finally, you are showing this product not only to your traditional customers because it could be also very interesting and valuable for other sectors.

We are very open with whom we speak.

Super. Thanks a lot. Thank you, Mr. Ries. Up to next time. Thanks. Bye.

Thank you, Mr. Hughes, also from my side. At the moment, there are no further questions in the queue. So, dear ladies and gentlemen, last call, please press 9 and the star key to state a question. I repeat, the combination is 9 star. All right, there are a few more questions incoming. The first one is from Robert Sanders, Deutsche Bank. Please, Mr. Sanders, over to you.

Hello. This is Rob. Can you hear me? And thanks for taking my question.

Thank you, Rob. We can hear you well. We're looking forward to your questions.

Great. Yeah, it was just on the foundry tightness. There have been some reports about lagging-edge foundries raising prices by 10% starting in June. Is that what you see? And is the idea then that into next year you could see corresponding growth price rises as you saw in 2022 and 2021? Or is the dynamic a little bit different to when we were in 21, 22?

No, we can debate the details now on different months or exact numbers, but this is the general direction that we see. We've already seen some competitors raising prices. April was, I believe, the first incident. And then there were quite some others. So I believe it's not exactly the way it was in 21. I mean, in 21, we had this huge swing into consumer first, and then we had this V-shaped recovery in the car industry. So I personally feel that 21 was a lot more brutal in the swings. And it was a lot more more unexpected now that AI demand just creeps up and it's tight and it's really tight And everyone kind of already learned something I believe from the 21 to 23 period We slide into allocation and and tightness, but I think overall the industry will better manage And at least that's knock on wood I this is likely to happen. Yeah, I believe the price increases should somehow reflect the increased costs throughout the value chain. We already discussed whether some people go in a less or more partnership-like way on that, but I think it's a good rule of thumb.

Great. And back in 22, you saw your competitors doing LTAs. I think you were a bit more reluctant to lock yourself in to a certain price because then you would end up taking on some risk, whether it's foundry cost or other kinds of cost. What is your thought process this time around regarding LTAs?

Yeah, well, we are always a little bit opportunistic, and there's no clear right or wrong on an LTA. In certain business situations, it does make sense. In others, it's actually not needed. I mean, if you win over a complete new business and you are the new sole source and everything, yes, maybe you want to be that for some years, such that all the effort and all the prioritization makes sense. Today, at this stage, I can't tell you whether there will be a lot of LCAs. Given where we are now in the cycle, I would doubt it. But honestly, whether that is still true in three months or six months, I can't tell you. Got it. Okay. Thanks a lot. Thank you, Robert.

Thank you very much. Next question is from Alexander Likas from GS&P KAGSA. Over to you.

Hi, good morning. I have a follow-up question on your share buyback potential. So during Capital Market Day, you've stated that you do not want to build up a large cash pile. And now you are considering buying back 10% of the share capital. Would this mean that you would also like to re-lever the company?

Yeah, this is one option that would go with such a step. However, it would still be very moderate leverage, of course.

In the past, you've been quite opportunistic and price-sensitive when it comes to share-by-backs. Do you still apply some kind of evaluation framework?

Yes, of course we do, but I think one thing really changed versus the past. In the past, we had very moderate cash flow generation, so we had to... be a lot more kind of opportunistic in buying back shares. Yes, there was money, but mostly from transactions like selling SMI or selling the FAB. And this situation is, of course, a little different from a capital allocation strategy that is a lot more structural. If you're structurally generating quite interesting amounts of cash, you have to – and you don't want to build a cash pile – you have to think about buybacks a little bit in a different way if you don't want to shift 100% to dividends. But I think this is kind of also a little bit off-center to shift 100% to dividends. So if you want to combine buybacks and dividends in a much more structural way, you are in a little different situation given the new ability to generate cash.

Okay, thanks. And given that you also mentioned that MDAX inclusion is a topic, how do you think about the balance between FreeFloat and Chevrolet?

Yeah, of course we would love more FreeFloat. This helps for MDAX. I believe it helps the stock itself. There is no structural reasons why 56 or 58% is a great number. I believe stability and long-term orientation is in line with much lower numbers of anchor shareholding. This is all debatable. For now, if we look at smaller buybacks, like the buybacks we've done at the beginning of this year, this does not change the structural kind of shareholder pie chart so much. So there's, I mean, we can continue doing buybacks with half a percent or so for quite some time until something really structurally changes. I mean, more free float is, in essence, a decision of the anchor shareholder family.

So they could also sell via Shevelback, for example?

Well, I mean, if you own shares, you can sell whenever you like, I think. I mean, if you're in the supervisory board, potentially not in a closed period or so, but I mean, this is the benefits of ownership. You can essentially do what you want.

Okay, great.

Thanks. Thank you for your question.

Thanks a lot also from my side. Dear ladies and gentlemen, as there are no more questions in the queue, With that, I'm closing the Q&A session and handing the floor back over to the host.

So this is then the end of our Q1 conference call. Thank you very much for your participation and all your great questions. I hope to meet many of you in our upcoming roadshows and investment conferences in London, Germany, and the U.S. So for now, thank you very much for your support and your interest in Elmos. Goodbye, take care, and stay confident.