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spk06: 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.
spk02: 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.
spk01: 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.
spk02: Thank you. The second quarter results were fully in line with the expectation reflecting the contrasting market dynamics we are currently experiencing. We continue to see strong demand for our 200 mm CMOS technologies and in particularly our 180 nm and the unique high voltage BCD on SOI. We continue this technology leadership with the 110 nanometer BCD on SOI that we released recently. The CMOS represents the largest part of our business, and therefore we continue to invest in this unique technology and growing capacities in line with our customer needs that have been identified and secured through long-term contracts. I'm pleased that we have initiated these investments and continue to make good progress in the execution of our expansions. Another highlight is our microsystems business, where demand is strong and the pipeline is full of exciting applications. While our SIG business is experiencing a period of customer destocking, I remain confident in the structural role strong demand for silicon carbide applications driven by worldwide transition to green mobility and green energy. Our leadership in the silicon carbide foundry continues to create great interest by fabless power companies, automotive tier ones, and OEMs. It is rather a demand shift in the next years, and I'm confident that our signal will also return to robust growth. And with this, I would like to terminate the introduction and pass over to the moderator for questions and answers.
spk06: Thank you. If you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. You'll be advised when to ask your question. We will take our first question from Robert Sanders, Dutch Bank. Your line is open, please go ahead.
spk04: Yeah, hi, good evening. Maybe you could just start by giving me the loading by diameter, as usual. Sorry, your normal question.
spk02: Well, the loading by diameter, so on the 200 millimeters, We are fully loaded in the CMOS site, and that's also where our expansions are predominantly happening. In the 150 millimeter CMOS site, the loading has been rather low, somewhere in the 50 to 60% range. However, this is gradually, I explained that we saw an uptick in 150 millimeter CMOS bookings. And so over the quarter, gradually that improved. And so as I said, that should positively contribute in the revenue in the fourth quarter this year.
spk04: Great. And then STMicro on their call was emphasizing the need to migrate production over to 300 millimeter. Yet your customer, lead customer, Molexis, is stuck on 200. I was just wondering what kind of cost advantage do you think could be gleaned by moving to 300 millimeter waiters? Let's say if Molexis produced chips at STMicro's 300 millimeter fabs.
spk02: Well, many of our customers have a lot of products and a lot of designs. So like, for instance, Melexis, they're producing 500 different products, and many of those products are running on average volumes. So it is not necessarily a big cost advantage to move to 300 millimeters for products that are not running in in high volume. Yeah, so there's also a big cost associated to such transitions.
spk05: Got it. Thanks a lot.
spk06: We currently have no questions coming through. As a reminder, if you'd like to ask a question, please press star one now. We'll pause for just a quick moment to allow everyone an opportunity to signal for questions.
spk05: We will take our next question from Trion Reed, Barenburg.
spk06: Your line is open. Please go ahead.
spk00: Yes, thanks. Thanks for taking my question. A couple of questions actually just on the silicon carbide side. I mean, you said... um that you think the silicon carbide business will bottom in q3 and then start to recover from q4 um i just want could give some indication of your visibility on this and why you think that recovery will start in q4 i think in the last call you sort of suggested it might start in in q3 um and then my second question is just on your comments around the the guidance cut and and that it mainly reflects silicon carbide. I just wondered if there was anything else you wanted to call out that it also reflects. Thanks.
spk02: No, the visibility on the silicon carbide is low for the time being. The expected recovery is based on forecasts and signals from our customers. However, it's not yet tangible in orders as we see it today. So far, and so we expect a further decrease in Q3 based on the orders and the wafer starts in Q2. Now the FAP loading is relatively low, so new orders that come in, come in with a better cycle time and so could still be executed and delivered in the fourth quarter. However, the visibility is still low there on the silicon carbide. Then your question on, yeah, how are the other things doing? So in general, let's say the correction of the guidance is, I would say, for three quarters related to the silicon carbide poor visibility and shift correction in the inventories and to 25 and a quarter I would say on the 0.35 micron where we were planning to do additional volumes on outsourcing where Actually, the demand does not require that, and the customers, they are reluctant to qualify other sources. So we will predominantly produce in-house those quantities. And so that's another quarter of the correction.
spk00: Great. Very clear. Thank you.
spk06: We will take our next question from Emmanuel Method. Odo BHF, your line is open, please go ahead.
spk05: You might want to unmute your line.
spk03: Your line is open, please go ahead. Sorry, sorry about that. Do you hear me now? Yes. Yes, okay, two questions for me, please. First, can you update us on your capex budget for this year? It will go down with some adjustments in Texas for your silicon carbide business. And second, I was just checking my model. TCC revenues are still going down quarter after quarter. Why? I saw the situation would stabilize, but it doesn't seem to be the case. Thank you.
spk02: The second question, you were referring to volumes of what? Ah, CCC? Yes. Ah, yeah, yeah, yeah. Okay, thank you. Yeah, with respect to the CAPEX, so we were still planning to do around the 550 million guidance that we gave for the full year. so that will not deviate too much. Indeed, we are reducing or shifting things on silicon carbide, but the majority of the CAPEX was anyhow planned on the 200 millimeter CMOS. We are progressing well there, and well, for some critical projects where we're trying to pull in where possible, so We do not see a reason to adjust our full year capex spend. And then with respect to the CCC, this is not in focus of the company. This also somewhat reflects a weaker demand on the RF SOI that we still have some customers, which is somewhat lower than expected. But anyhow, it's not an area of focus. And so all our resources are focused on maximizing the output on 200 millimeters for our automotive customers right now.
spk03: Okay, thank you for those comments.
spk06: As a final reminder, if you like to ask questions, please press star 1 on your telephone keypad now. We'll pause for another quick moment to allow everyone an opportunity to signal for questions.
spk05: There are no further questions on the line.
spk06: I apologize. We have one more question on the line. We'll take our question from Robert Sanders, Dutch Bank. Your line is open. Please go ahead.
spk04: Yeah. Can you just run through the cost inflation situation just by the different inputs, whether it's, you know, wafers, which presumably are getting cheaper, materials like gases, acids, chemicals, which are... maybe a mixture of things, and the other key sort of elements, just so we can think about your profitability into next year. Thanks.
spk02: Well, those elements like energy, materials, substrates, and so forth, there are some positive developments there. Therefore, yeah, this also has a positive impact on our overall profitability, despite the fact that we are running at lower volumes than anticipated. So this does have a positive impact going on differently for 2024. And that should also help us with good profitability in the second half, where we expect a good recovery, where the volumes will go up. Cost structures might be a bit better than planned. And so that's, these are good things.
spk04: But what about wafers? I mean, to look in carbide, the Chinese are charging $500 now for six-inch. Seems that number's going down pretty rapidly.
spk02: the Siltronic has massive excess capacity in 6 and 8 inch so presumably you can extract quite big concessions now yeah so that's but on the silicon carbide remember the market is on a low now so we don't buy that many wafers right now that's the first thing and uh and secondly we we where possible we work through consign consigned wafers where also then the wafer substrate cost does not fall on on extract pnl uh only on all the other areas yes you're right we will we take advantage of uh of possibilities of uh as negotiations as possible.
spk04: And just lastly, on the SmartSIC deal, it sounds like that's a consignment deal again where you're not actually bearing any real kind of inventory risk. But are you developing PDKs and all of that sort of thing to design to SmartSIC? I think one of the challenges SmartSIC has is that companies want multiple silicon carbide suppliers on mono silicon carbide. They don't want to be beholden to uh, soy tech. So, so how much actual investment are you putting behind this, uh, smart tech technology to, to kind of evangelize the technology and get it going?
spk02: So we, uh, uh, indeed, so we are consigned agreement to death. We have a handful of customers who are interested in, in, in testing and, and we're launching the necessary tests and qualifications for them to qualify the benefits on their products with SmartSeq.
spk05: Thanks a lot.
spk06: There are no further questions on the line, so I'll now hand you back to your host for closing remarks.
spk02: Thank you, everyone, for joining the call today, and I hope to hear you back on the 24th of October for the third quarter results. Good evening, everyone.
spk01: Thank you. Goodbye.
spk06: Thank you for joining today's call. You may now disconnect.
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