Technoprobe Spa U/Adr

Good evening and thank you for joining us. I'm with Stefano Beretta, our CFO, presenting the full year 2024 results and the guidance for the first quarter of this year. As usual, a Q&A session will follow at the end of the presentation. 2024 confirmed Technoprobe as leader in the testing of logic chips for artificial intelligence. Investment we made in the last couple of years together with the solid know-how of Technoprobe in the MEMS technology have been the drivers to achieve this leadership. Looking at revenues split, 35% of revenues refers to artificial intelligence, approximately plus 15% compared to 2023. A better than expected result driven by a surge in volumes of chips for data centers, feasible thanks to the increase in manufacturing capacity compared to 2023. Artificial intelligence will remain the main growth driver also for 2025. Demand is seen as both realistic and extremely strong. Also bear in mind that artificial intelligence, as well as the most technological advanced chips, requires high performance, low power consumptions, and quick data processing features supported by advanced packaging architectures. These architectures, which use sophisticated technology and aggregate components to create a single electronic device, require advanced testing solutions based on MEMS technologies. That said, we're assuming a progressive and steady increase in demand for advanced logic testing solutions. Let's move to consumer segment, which for us refers mainly to PC and mobile. It is stable at approximately 50% of our revenues. 2024 has been a year of stabilization and the segment is expected to post a slight growth in 2025. In fact, we think that they will still suffer from a slower adoption of AI at the edge, which is confirmed to be the real catalyst. The exposure of automotive industrial decreased in 2024 for 20% to 15%. The industrial segment is expected to remain sluggish in 2025 due to the stocking expected to continue at least in the first half of this year. The automotive segment will show same areas of weakness as well as OEM inventory containment measures and slow electrical vehicle sales, even if the long-term trend of electrification has not changed. In this scenario, our expectations for the current year are positive. We are working to secure the leading position of Technoprobe in artificial intelligence to consolidate our distinct knowledge in the advanced testing space, both at front end and back end, and continue to work hard on the ambitious project to enter in the high bandwidth memory market segment. As you know, we will dig more into our competitive positioning in the testing space focusing on the growth trajectories of our company in a couple of weeks during the capital market day that will be held on April 14. Now I turn over to Stefano Barretta who will give you more color on our 2024 results.

Thank you Stefano, good afternoon everyone. As you have seen in our press release just published, Star Revenues in the fourth quarter were euro 156.3 million beating the guidance and registering an increase of 53.3 percent compared to the same quarter of prior year with a sequential increase of 7.2 percent compared to q3 2024. gross profit increased 48.7 compared to the same period of 2023 up to 63.3 million representing 40.5 percent margin at the lower end of our guidance, inclusive of approximately $6 million of fixed-asset impairment and $1.5 million of severance and other provisions related to the US reorganization announced during the quarter. Excluding these, the gross profit would have been equal to 45.3%, beating the guidance consistently with the revenue. Also, the EBITDA closed at the higher point of the guidance, It increased 85.8% compared to the fourth quarter of 2023, with a margin of 26.4%. Without the U.S., reorganization provisions would have been equal to 27.3%. Moving to the year-to-date figures, total revenue were $543.2 million, with a year-on-year increase close to 33%. Gross profit was 223.4 million, 12.1% up compared to the same period of 2023, and representing a margin of 41.1%, or 42.5% without the reorganization provisions. The EBITDA for the year closed at 136.5 million, up 11.2% compared to the same period of 2023, and representing a margin of 25.1%, 25.4% without the reorganization provision. For the completeness of information and competition purposes, it's worth remembering that all the above figures include a new perimeter of consolidation, inclusive of the contribution of Arbor Electronics, 12 months in 2024 compared to a little less than five months in 2023, and DIS tech seven months in 2024 compared to zero in 2023. If you can move the next page, so thank you. So you can see the simple annual trend by quarter of our main KPIs. So revenue, gross profit, margin and EBITDA. So the slow but steady growth in all our KPIs was really consistent with our prudent view of the market and confirms the solidity of our plan. So despite the uncertainties that characterized 2024, particularly in the consumer automotive segments, like Stefano Felici said a few minutes ago. So the organic revenue, just for your information, in 2024 compared to 2023, was, as expected, mid-double digit at 14%. On this page, you can see the usual summary comparison between the financials at the end of 2023 and 2024. So just to comment it further, so revenue year-on-year increase of 32.7% was driven by a gradual recovery of the consumer segment. and by volumes related to the artificial intelligence. And for the other half of the contribution, for Arbor and the ISTEC, all of them partially mitigated by the weakness in automotive and industrial. Revenues expressed in cost and currency, so using the same average effects rate of 2023, would have been approximately 3.2 million higher than reported revenues, meaning less than 1% unfavorable impact. In fact, in the 12 months average, the Euro rate for fiscal year 24 was pretty aligned with prior year, so 1.082 compared to 1.081 of 2023. On a gross profit level, the decrease in the margin from 48.7 to 41.1 was the result of the expected dilution from the mentioned acquisition. together with a relevant increase of depreciation following the investments in fixed assets made in the last 12 months and also due to the growing complexity of our products and to the related and temporary lower performance registered in the second and third quarters of the year now resolved. Moreover, as mentioned during Q4, a significant reorganization process has affected the U.S. structure, so bringing into the accounts provisions for approximately 13.5 million, of which 7.5 impacting the gross profit, six of them related to fixed asset, and 1.5 related to severance, inventory, and other minor provisions. Finally, it's worth remembering that during the year, a prudent inventory reserve of approximately 13 million was recorded to reflect both a slower inventory rotation given the already mentioned reduction of revenues, together with a potentially faster obsolescence of own-end semi-finished products. Gross profit at constant currency has been approximately 1.5 million higher by using the 12 months 2023 average rate. Consistently, the EBITDA reflect the same trend, showing a decrease in the margin from 30% to 25%, including a negative Forex impact for approximately 1.4 million. We would like again that EBITDA was also impacted by a significant amount of R&D costs, approximately 63 million, 6 million more compared to the amount recorded in the same period of 2023 and representing approximately 12% of our revenues, confirming once again the mindset and the commitment of our leadership to continuously developing new products and solutions. Finally, a few words for the net financial position that is up for almost 395 million in the 12-month period, mainly due to 124 generated through the operating activities, together with 385 generated through the capital increase following the Terradon acquisition of 10% stake. Both of them partially offset by 94 million absorbed by the investment of the period, 82 million absorbed by the acquisition of the IS Tech, and 35 million absorbed by the Shared Payback Program. We wanted to include also this page in a very synthetic focus on investments, which have grown to the threshold of Euro 100 million compared to 73 in the previous year. representing now a portion equal to 80% of the revenues. As just mentioned in the previous comments, most of the investments were dedicated to the completion of the second MLO and MLC factory in Taiwan, which will be operating starting from the second quarter of 2025, as well as to the increase in production capacity and automation in manufacturing processes of Technoprobe Italy. Now I hand over to Stefano Felici for the next comment.

Yes, as you know, we signed partnerships with Teradyne and Advantest, the two main tester and manufacturer. Our aim is to build an open ecosystem to share knowledge on the entire testing process to facilitate the technology evolution. Now I will hand back again to Stefano Beretta for the first quarter of 2025.

Thank you, Stefano. So we project an overall stabilization in our reference market for the first part of the year with a slight sequential increase in revenue together with a progressive recovery of profitability. So that said, first quarter of the year is expected to show the following revenues to be about 157 million plus minus 3%. Gross margin in the range of 44.6% plus minus 2%. EBITDA margin in the range of 30.2% plus minus 2%. So thanks everyone for your attention. Now we can move to the Q&A session.

Thank you to the management team. We now have an opportunity for questions. As a reminder, if you would like to ask a question, please use the raise hand function on your screen or for those dialing in, it's star nine on your keypad. Once your name is announced, please remember to unmute your line and state your company name before asking your question. Thank you. The first question we have today comes from Giovanni Silvetti. Please, Giovanni, the floor to you. Giovanni, I can see that you're on mute. Can you hear me now? Yes, we can hear you. Thank you.

Hello, everyone, and thanks for taking my question. I have a very quick one. I was wondering if you can give a sense of what CapEx is going to look like in 2025. I can see, and thanks for the split, of the 100 million roughly invested in 2024. I'm just asking that to have a sense of what the DNA weight is going to be, let's just say going forward, because I could see that in 2024 was higher than actually more than expected. The second question is more about the cash, which is of course now already a lot and it's increasing at 650 roughly million. I was wondering if you can give us an idea of how the cash is going to deploy if you're still intending to buy back or if you are planning to just say invest this cash or if you think about this, just say good portion of financial income below the EBIT to be in a way stable. And maybe if you can give a bit more color on the gains on FX below the EBIT line. That's it.

Thank you, Giovanni. So moving back to the first question about CapEx in 2025 will be in the range of 50 million. So we expect to be back to the usual level of investments after the big investment we did in the last couple of years. So we do not expect to increase that much compared to what we did in 2023 and 2024. So the increase of the depreciation and amortization for 2025 will be mostly due to the investment we already did in 2024. Back to the second question about cash. So you are correct. So we are in the region of 670 million euro total cash of the company. Net financial position is 10 million lower due to the right of use for leasing, but cash is pretty high. I agree with you. And the strategy now is to keep part of this revenue, of course, for our operations. Let's say one third of them will be fully dedicated for operation. The other third of the cash will be dedicated to potential, let me say M&A, in case there will be the opportunity to make some good deal on the market, for which we are always keen for that. And the remaining part is currently, let me say, invested in the money market. So with zero risk of 10 deposits, zero risk as well, considering the good remuneration that are currently offered by our banks. So for the moment, we have no other plans for that portion of the cash. And about your third question of gain on FX, the most part of this gain is considered unrealized gain, because if you consider that in the last month of the year, the FX rate between US dollar and Euro dropped significantly compared to the average rate of the year, that was 1.08. It went down suddenly to 1.05. So that only means stronger US dollar. So the most part of the transaction occurred at the other end were converted at a better rate. So the most part of that gave us a significant boost in terms of FX impact. So this is the main explanation.

Okay. And if I may, since you mentioned that a third would be in a way destined to potential M&A, is there anything that you're... scouting now? Is there anything that you're evaluating at the moment or it's just regular scouting but nothing close?

So just to answer this question, first of all, I'd like to remind our DNA as a company was always to develop the key technologies in-house because that is and to vertically integrate these technologies in order to have a competitive advantage in the market and have a better cost, be more cost effective. But time to time also we are looking outside, of course, because we can speed up sometimes the process and we can integrate some technologies already available. So we are always scouting for technologies And I would say as a regular scouting at this moment, we don't have any specific target, but we'll always see if there are something that is popping up that can be interested to integrate in our portfolio.

OK, thank you very much.

Thank you for these questions. Our next question comes from Alberto Jegra. Please, Alberto, go ahead.

Good afternoon. Can you hear me?

Yes.

OK, so my first question is on the end markets, because you are projecting a broadly stable consumer market in 2025, then a lower demand in the auto and industrial. So what about AI data center? Can you give us a sense of which kind of growth should we expect after the strong 2024? Then on M&A contribution, what is the DIS and ARBUR contribution in the fourth quarter and in the guidance for the first quarter? More in general, can you help us understanding what is driving margin up in the first quarter compared to the last quarter of 2024 despite the similar level of sales? Then one last question on tariff. I know it's still a bit of an uncertain environment, but can you tell us how much of your products are shipped to the US and more in general, your view on this topic? Thank you.

I will start to answer the first question about the market. What I can tell you is, of course, you can see 2024 was a very strong year for AI. And we see that 2025 is at least as much as strong as 2024, or even higher at this moment. Slightly higher, maybe. As far as computing, it is flat, I would say. And we see still a weakness in the automotive and the industrial. But what is driving more than any other segment is the AI and the pro cards for the AI are more complex. And also the price, the average price is higher. So that is driving a very strong revenue for us.

About duties, this is a very sensitive point, so thanks for asking. This is something we are really, really careful about and monitoring everyday situation. So for the moment, as you said, there are no particular concrete signals or triggers that can show some new duty, some custom duty on this semiconductor space. So for the moment, we are still on the window. In case... For sure, we debate with our customers to understand which is the best solution to continue to serve them in the best way we can. For the moment, approximately a volume of 45 to 50% of our market is in the US with US customers. Even if this market is not completely translated into shipping into the US, In fact, the shipment to U.S. is reduced because most of these customers already prefer to get shipped in other countries, so in Asia, basically. And we can reduce the portion I mentioned in a range between 15% and 20% in terms of volume shipped to the U.S. market.

Thank you.

I had another question on margin contribution from acquisitions. Yes, please. Sorry, my question was on the contribution of Arbor and DIS on sales and profitability in the last quarter of 24 and what you expect in the first quarter of 25.

Thank you. I can tell you in the last part of the year, both of them combined Arbor and EIS, combining more or less for zero profitability, including all the reorganization costs that we have recorded already in 2024 that affected already EBITDA and gross profit. So both of them were pretty neutral in terms of contribution for 2024, diluting, of course, the other part of the business of the prop card. So moving forward, Harvard has been reorganized. So the Santa Clara facility has been closed in Q1 2025. And also the Microfabrica facility has been reduced a lot and merged into Technoprobe America. So both of them have continued to perform their operation until the end of March 2025 and will be completely shut down in April 2025 and going on. So that's why in Q1, we do not expect a significant reduction in cost. In fact, our EBITDA will increase. We expect an increase up to more than 30%. That is already a good and strong signal for our business, but still including some dilution from hardware performance. Moving forward, the contribution that will be measured between DIS and Technoprobe will not be that clear in terms of segregation because DIS now is in the process of a complete integration into the model of Technoprobe and a significant part of its business will be addressed to serve the current Technoprobe card manufacturing. So it will be pretty difficult and not completely clear, which will be the contribution moving forward in 2025. But overall, just to give you a broad sense of the measure, so in 2025, the IAS, if we consider standalone, can make a profitability in the region of 10%, something like that. But most of that will be transferred to technoprobe profitability. So it will be borderline to define a separate division. We are considering ourselves as a unique cash generating unit.

Thank you very much.

Thank you. Our next question now comes from Gianmarco Bonaccina. Please, Gianmarco, the floor to you.

Yes, good afternoon. Two questions for me. First one, business-wise, can you give us an update on the qualification process for HBM? Is this something you are aiming for this year or next year? And then also on final testing, my understanding was that you bought DIS to have some products for, let's say, entering these... new market, how is going the work to prepare a new product for, let's say, advanced testing for ICs. And then a question on provision in DNA. I see that you had 69 million of DNA and provision for the full year. I understood you said you had 7.5 provision in Q4. It's not clear for the full year. So just to understand what is the recurring underlying DNA stripping out all the provision for the full year. And sorry, the last one is about the margin, given that you will have some benefit from the restructuring of Harbour and BIS in the rest of the year. So can we consider the 30% BDA margin you should have in Q1 as a floor for the year? Thank you.

OK. We'll start with your first question about HBM. Yes, I confirm we are running some qualification with main HBM players. So the expectation is to finish the qualification by the end of the year. And if positive, we can expect to start some business in 2026. And about the final test, this is a, uh, is already in progress, but it's actually, uh, DAS is doing already introducing already, uh, final test business to main customers. So this is already happening as a part of DAS business.

Okay. So moving to the provision question. So, uh, DNA. It's correct what you say. So the most part, you have to strip it out from DNA in general overall, approximately 12 million. Six million are above the gross profit and six million are below the gross profit. So total provision for impairment of fixed asset was equal to 12 million. including both Arbor Electronics and Microfabrica provision. So when I mentioned 7.5 million before, it includes the 6 million above the gross profit plus 1.5 million for the severance related to employees and inventory and other provisions. But strictly related to DNA, we talk about six above gross profit and six below gross profit. And the last part of your question was the profitability. So the margin, 30%, is expected to be actually the floor for the year, depending on, of course, The trend of the FX rate, depending on the volumes, depending on extraordinary provision, if it happens. But let's say if the business will be as a recurring business, we do not expect less than 30%. With the path we are now going. Thank you.

Thank you for this question. We now have a question from Fabio Pavan. Please, Fabio, the floor to you. Fabio, I can see that you currently unmute your line in order to ask your question. Thank you. I see that Fabio is having some problems, so we will move on to the next question, which comes from Domenico Gilotti. Please, Domenico, go ahead. Domenico, please unmute your line.

Can you hear me now? Okay. Okay. So the first question is on if you can provide some more color on the agreement with the ADVAN test. So the opportunity there and so the strategic implications. And the second question is on the MLO. So you are trying to produce internally. So the MLO, so I'm trying to understand how much do you think you can produce? already managed with the new plant that you are starting up in Taiwan in terms of internal MLO production. And if you see any implication on your business from the deal executed on FICT that I, if I'm not wrong, it's a supplier of MLO.

For, starting from Adventest, for us was a, strategic deal to assure the PCB supply chain. And as Adventest has a much stronger, bigger factory in US and Taiwan. And so for us, it was not making sense to keep a small company factory like Harbor in the US. So with this deal, we can say that we are going to be sure to secure the supply chain for this very important component of the ProCard and the final test port. And coming to your second question about MLO, we cannot already, it's not something we are trying to do, but it's already happening. And right now we are about taking, let's say, we can produce 50% of our internal need, our need is produced by our factory. And 50% is our source. And the reason of the extra investment on the MLO line was also to... to have the possibility to go to 100% if needed. And so we're not worried about this because we are going to have enough capacity for all our need. So in this moment, there is in any way no sign that the current supplier will stop supply everybody. But on our side, we feel that we will not have any problem because we will have enough capacity in there. Are you satisfied with the quality of the product that's coming from internal production or do you need to ramp up the... No, the product actually we develop in-house as even better performance than... And this was... Again, coming back to our DNA as a company is to develop technologies. We say we develop technologies that are not available. And that was the case. So the MLO done with a very complex technology was not available three, four years ago. And that's why we decided to invest in that technology. to a technology that could follow the future roadmap. So at this moment, we can say that our MLO is the most advanced MLO in the market. And we can follow really the roadmap for many years ahead of us. And of course, we cannot know We don't know if the other technologies available in the market will be able to do that, but we are very confident in our technology because it's based on wafer technologies, so semiconductor technologies, so very advanced.

Thank you.

Thank you for these questions. We're going to try to give the word back to Fabio Pavan. Please, Fabio, remember to unmute your line in order to ask the question. Thank you.

Yes, I'm here. Can you hear me now? Oh, finally. A few quick follow-ups. The first one is we're looking at 25Q1 guidance. Would it be fair to assume that the data center and the AI business would finally go end up in representing more than 40% of top line. Second question is again on AEI. Can you give us some more color what's going on in terms of demand for customers if there are new customers, if the demand is coming from same customers? And finally, a follow up on the tariffs. If I got it properly, you were saying that you can neutralize a big portion of the potential impact in terms of duties. Just wanted to double check if 15% of revenues is the number we may expect to be affected by these duties. Thank you.

So let me start from the bottom. So I didn't say we can neutralize the hub of duties. The percentage is more or less what you said. So between 15 and 20% of the deliveries are addressed to the U.S. market. So they, in case, will be subject to duties. In that case, there will be any custom duties associated to our products. We'll discuss with the customers which is the best way to mitigate and to reduce the impact. So sooner or later, someone should decide who can absorb the cost of this or part of this or none. So depending on which would be the agreement with them, we can then mitigate the impact just in case. For the moment, there are no particular triggers. Back to the first question about the split for the AI. we can see an overall addressable market for AI 2025 that is equal between 35% and 40% for the full year. Given the split by a single quarter, it's very, very difficult also because there is always the cutoff data. So we can have an order in Q1, but the delivery in the second quarter related to AI. So it's very tricky to give a day-by-day allocation by market. Overall, we expect to grow the AI market as said. So in the region of 35% to 40% for the full year. And I missed the second question. Sorry, can you repeat that? What was the question?

I guess it was still referring on some potential more color on your AI services, but partially you already have answered this question.

I can maybe add that, of course, as you know, there are two main players for cloud AI. And for those, we developed some... specific technologies, we feel very strong. There are some other opportunities that are coming from hyperscalers. And we're talking about custom ASICs devices. So in that case, for sure we are in a position that we can leverage on our technologies, even though these products are less complex than the main ships. There are still pretty complex devices, and they can leverage from our technologies to get better performance. But this is an opportunity that actually is not depending on us, but depending on how the market of the hyperscalers will develop in this segment. But for sure, we see a good opportunity in that area.

Super. Thank you very much.

Thank you, Fabio. We now have the question from Luca Baccoccoli. Please, Luca, the floor to you.

Hello. Can you hear me? Yes. Ciao, Luca. Ciao. Good afternoon, everyone. So a question and a clarification. The question regards the margin evolution in the coming quarters. If I got it right, you basically completed the restructuring in the US for Arbor Electronics is concerned. So I was wondering what margin should we expect in terms of improvement thanks to these restructuring activity. And a clarification is on the first quarter guidance margin which are improving significantly despite the restructuring was not completely yet over. So what I was wondering what is driving the strong margin increase which are almost basically flat sequentially. Thank you.

So starting from the revenue lines, the top line increases more or less 7% compared to prior quarter. We talk about Q4 respect to Q3. This 7% was affected a bit by the single quarter benefit from effects. And that brought increase in the profitability as well for the full year. So you see the sequential increase already arrived to 25% is the best quarter, more or less, best quarter of the year. And we expect plus 5%, five points more in Q1 2025, so arriving to 30%. The organization effect in the Q1 will be still limited, as mentioned, because the two FABs, Microfabrica and Arbor Electronics are still operating in the quarter. So there is a partial effect in Q1 because most of the provision has been recognized in 2024, but we expect a further benefit in the second part of the year, so second half to Q3 and Q4. Where we can arrive, that really depends on the complete integration of the IAS. There is still a way to go. to be fully integrated in terms of processes and efficiency. And also, let's not forget that EUA, FEB, for which we invested more than 100 million in the last couple of years, are still running not a full capacity. So we expect fiscal year 25 to run between 25 and 30% of the capacity. So that brings a bit of additional cost and inefficiency, we will not be able to reach the full efficiency in 2035. And we are currently not really able to define if the full efficiency will be gained in Q3, Q4 or Q1 2026. That's why we are very, very careful when we want to project our profits, but for sure that will be increased compared to 2024. and is a very good and important signal for our business.

Okay, thank you. And just another follow-up on profitability. You were mentioning that pricing on artificial intelligence is higher than the rest of the business. Does this translate also in better margin? Thank you.

This is slightly better. Because that's correct, there will be higher revenues, but you have to remind that there will be higher costs, especially R&D, especially cost of products. So profitability will increase a bit, but not that much to have a significant amount, a visible amount on the overall profitability of the company. We always say that the best driver for the profit profitability is volume. So when the volume goes up, profitability of the company is more than proportionate.

Okay, great. Thank you.

Thank you, Luca, for your question. Our next question now comes from Alberto Gegra. Please, Alberto, go ahead.

Yes, one last curiosity from my side, because Teradyne during his last analyst day spoke about joint development project with you to launch a new product on the market this year, then with more material financial impact on 2026. So can you provide any additional color on that? Thank you.

Yeah, so. Basically, the. There are several projects and several applications that we are working together with them. And the reason is very simple. It's because, as you know, the ProCard is interfacing with the tester. And the tester is the one that is where the test program is loaded and to the ProCard is reaching the silicon. under test. So it's very clear that the two things are not separate things, but the tested technology should evolve based on the ProCard technology and also the opposite. So the ProCard technology is evolving based on tested technology. So there are many things that should develop together in order to have at the end a better test coverage. And so this is basically the reason of several joint development projects.

Thank you very much.

Thank you. As there are no further questions, I will now give the word back to the speakers for any final comments before bringing this presentation to a close. Thank you.

I'd like to thank everyone, and we will be waiting for you for the capital market day on the April 14th, 2025.