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