X-Fab Silicon Foundris Se

Welcome to XWeb Q2 2024 Result Conference Call. My name is Alan and I will be your coordinator for today's event. Please note this call has been recorded and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any time, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Rudy De Winter, CEO, to begin today's conference. Thank you.

Thank you. Welcome, everyone. Today in the conference call, we also have Alba Morganti, CFO. In the first quarter of 2024, sorry, in the second quarter of 2024, the revenues were $205 million. down 9% year-on-year and 4% quarter-on-quarter, which is in line with the guidance of 200 to 210 million. Revenues in the core markets, automotive, industrial, medical accounted 190 million, down 4% year-on-year, and representing, though, a whole-time record high with respect to the share of total revenues in the portfolio. The second quarter was marked by a combination of developments. On the one hand, demand for 200-millimeter CMOS technologies remain high, and the allocation of available capacities continued. In particular, the continued ramp of XFAB Popular 180-nanometer automotive technology at XFAB France contributed to the automotive growth in the second quarter, with revenues amounting 142 million, up 9% year on year. The second quarter CMOS business totaled 166 million, down 8% compared to the same quarter last year, and the decline reflects the demand weakness for 150 millimeter CMOS technologies following expected inventory corrections in the industrial end markets. As anticipated, silicon carbide revenue for the second quarter declined by 33% year-on-year to $11.6 million after the low bookings in the first quarter. The current weakness is projected to bottom out in the third quarter. Based on customer feedback, a recovery is anticipated to begin in the fourth quarter with a return to robust growth in 2025. Both the weakness in 150 millimeter as well as the silicon carbide impacted the industrial business revenue, which recorded in the second quarter 34 million, down 33% year on year. Order intake for the 150 millimeter CMOS technologies started to recover in the second quarter, and will be contributing positively to revenue evolution in the fourth quarter. XFAB Microsystems business recorded a revenue of 25 million in the second quarter with a strong growth of 21% year on year. This was mainly driven by the ramp of next generation automotive headlamp applications. Medical revenues came in at 13 million, down 18% year on year. Apart from normal fluctuations, the decline is temporarily affected. The temporary effect relates to the need to allocate CMOS capacities. Going forward, medical revenue is expected to return to solid growth based on new design wins, high demand applications, as well as strong medical bookings in the second quarter. Overall, XFAP recorded strong quarterly bookings amounting to $248 million, up 12% year-on-year. This reflects the robust demand for 200 mm CMOS and microsystems technologies, as well as an uptick in the 150 mm CMOS demand, the latter primarily related to industrial and medical end markets. Backlog at the end of the second quarter came in at $270 million compared to $220 million at the first quarter. Quarterly prototyping revenues totaled $21 million, down 24% year-on-year, mainly influenced by the silicon carbide activity, where also engineering and production safe launch were on the low side. The revenue at the full year guidance mainly reflects the delayed recovery of the silicon carbide business. Despite the temporary effect, XFAP remains confident in the long-term prospects of its silicon carbide business. With the projected increase in EV sales long-term, the greater adoption of silicon carbide in inverters, and the anticipated completion of customer destocking. The XFAP expects a return to strong silicon carbide revenue in 2025. Business fundamentals are intact and XFAP remains well positioned for long-term business success. XFAP's comprehensive and highly specialized technology portfolio enables innovative solutions to address the major megatrends of our time. Electrification of everything is inevitable to move away from fossil fuels and mitigate climate change, driving long-term growth in XFAP automotive and industrial business. Aging and growing populations require technological innovations to make prevention, diagnosis, and treatment of diseases more efficient, reliable, and accessible to an ever-growing number of people. XFAB Microsystems expertise with the combination of CMOS and MEMS supports this development of world-leading medical applications and fuels the long-term growth of XFAB medical business. The capacity utilization, let's move to the operations side. The capacity utilization of XFAB factories varied by technology. The 200 mm CMOS lines, especially those producing the high-demand 180 nm technologies, were running at full load, while the 150 mm CMOS FAPs recorded lower utilization rates in line with the current demand. In the second quarter, XFAP continued its capacity expansion programs. The total capacity expenditure for the second quarter amounts at $122 million. The building construction at XFAB Sarawak in Malaysia to create additional cleanroom space is on track, as is the plan to start moving in equipment in the fourth quarter. XFAB France continues to expand capacity with new equipment coming online. Both sites manufacture XFAB popular 200mm CMOS technologies and it is essential to increase the capacity to better meet our customer demand. The silicon carbide capacity expansion at XFAB TechFast was slowed down in the second quarter in response to current market demand, reflecting XFAB approach of gradually increasing capacity in line with identified the amount and long-term customer commitments. There is still strong long-term interest in silicon carbide and corresponding capacity. However, there will be a shift in time. Now I would like to pass the word to Alba for the financials.

Thank you, Rudy. Good evening, ladies and gentlemen. We will now move to the financial update. I would like to start this financial section by highlighting that the second quarter totalized 205.1 million U.S. dollar sales, which was within the guidance of 200 to 210 million and representing a decrease of 9% year-on-year and 4% quarter-on-quarter. The second quarter EBDA was almost $48 million with an EBDA margin of 23.3%. If we exclude the positive impact from revenues recognized over time, the EBITDA margin of the second quarter would have been 22.7%, which was then at the higher end of the guided 23%. Our profitability is not affected by exchange rate fluctuations as our business continues to be naturally hedged. At a constant US dollar-euro exchange rate of 1.09 as experienced in the previous year's quarter, the ABDA margin would have been the same. Our cash-in-cash equivalent at the end of the second quarter remained strong and amounted to $290.1 million. The financing of our capital expenditure for all our ongoing capacity expansion program through 2025 is secured by our available cash reserves in combination with credit facilities, prepayments received from the customers with long-term agreements, and last but not least, operating cash flows, each of which accounting for approximately one-third of our total cash requirement. For the additional capacity that we are building as part of our expansion program, the corresponding business has been identified, either as part of long-term agreement or as part of customer forecasts for existing products which are in high demand, which confirms that our good capex Sorry, that confirms that our CAPEX strategy is good. And now, a more technical explanation. Based on the amendments to International Accounting Standards, IAS 1, regarding the classification of liabilities as current or non-current, we changed the presentation of the borrowings under our multi-currency revolving credit facility of 200 million Euro, which were classified as current until December 31st, 2023. But as of January 1st, this year, we reclassified these obligations as non-current. And of course, we had to do it also retrospectively. Therefore, the balance sheets as of June 30th, 2023, December 31st, 2023, have been restated to reflect this change, whereby the outstanding position under our €200 million multi-currency revolving credit facility respectively amounted to $180.9 million and $192.7 million. They were both reclassified from current to non-current borrowings. And to conclude this financial section, I would like to share our guidance for next quarter and give you an update on full year's perspective. The third quarter 2023, the outlook revenue is expected to come in within a range of 205 to $215 million with an MBDA margin in the range of 24 to 27%. The guidance is based on an average exchange rate of 1.07 US dollar to Euro and does not take into account the potential impact related to IFRS 15. In light of the still ongoing softening of demand, we adjusted our full year revenue guidance from $900 to $970 million to $860, $880 million, which mainly reflects the overall delayed recovery of the silicon carbide power device market. With a slightly adjusted top end, the full-year EBITDA guidance range has also been narrowed to 25% to 28%. Analyzing the third quarter and full-year guidance, you will notice that this implies a further strong growth in Q4 this year for both revenue and margin. And now I would like to give the word back to Rudy.