Sivers Semiconductors AB (publ)

Good morning, this is Anders Storm, the Group CEO of Sievers and very welcome to the first quarter 2024 webcast for Sievers Semiconductors. And with me here today, I have Lottie Saxe as well, our CFO. So I hope the sounds works here today. Let's move on. So we're going to today's agenda, a short executive summary, a sales overview, what's happened, financial overview, market and business update, what's happening there, and a summary and then as usual a Q&A in the end.

So

if we look at the quarter, it was a stable quarter with revenue in line with last year's revenue and of course it's been a very, very great year last year with 130% growth. So it was a little bit difficult to grow the company in this quarter. However, even if we are in line with last year's revenue, we are still, it's still that we actually improved EBITDA quite a lot, almost 40%. And we also had a great quarter when we look at order intake. We have four huge orders in the vicinity of 100 million dollars in sales and then other orders, of course, on top of that, we haven't press released. And of course, both adjusted and the EBITDA was in line in the same levels. And I'm going to talk more about these four deals and what's happened during the quarter

as well.

We

also seen,

which is a good sign, increased demand on new business opportunities in the 5G area, which have sort of been in across many geographical areas. And also had a very good quarter when it comes to successfully securing funding with loans and other access and for the coming 12 months, which is sort of a very important step, of course, when we are getting closer and closer to a cash flow, operational cash flow positive and so forth. So again, the quarter minus 4% year over year, but 35% improvement in EBITDA and adjusted EBITDA. And here you can see a very positive trajectory as as looking over the last two and a half year about that. And we're moving in the right direction with that. You can see that Q4 is often a very, very strong quarter. And then we have also moving in the right direction on the adjusted EBITDA here in a positive trajectory in quarter over quarters with last year's being an up higher with really strong sales, of course. And also to understand a little bit, we're getting a lot of questions around EBIT, and it's so negative compared to the EBITDA and why is that and so forth. And it's a lot of non cash flow items. If you look at the EBITDA, and these are sort of running depreciations that will be there for quite some while, actually. And that's why we think it's at this stage for the company. It's more important to look at the EBITDA rather than than the EBIT, which is sort of affected more with the non cash flow items. So it's R&D, capitalization that is now depreciated over a five year period. And a lot of that are investments done in 5G. We also have some fixed assets where we bought equipment and others. They are also depreciated over a five year period. Then, of course, we have the mixed acquisition, which was actually, you know, at that stage, 85% share transaction. But even so, we have to depreciate that value that actually came in then in that acquisition. And that's depreciated over a 15 year period, which is 13.4 million per quarter that we are depreciating. And then we have leasing contracts and others, which is also depreciated depending on on things for over a three to seven year period. So hence, it's important to understand if you want to sort of estimate EBIT, you have to add these sort of depreciations of about 26 million every quarter. And then EBITDA, of course, which is in this case, improved quite a lot compared to last year. And that's why we look more at EBITDA and EBIT right now, because it's not so much we can do about these depreciations. OK, so looking at the sales, summarizing, I mean, our latest 18 months, I think we've had a fantastic sort of uptake in our sales and order intake. We are now at about 42 million dollars that we are working on and getting out in revenue over the quarters. We still have a lot of this. And as I mentioned over the last quarter, we brought in another 10 million. And we see a great pipeline and growth also for the future in both business units in that sense, even if we're having a little bit of a slower growth pace in the first half of this year, we see that pace picking up again in the second half. And as we've seen for the company, we've had sort of a plus 44 percent growth over the last seven years. So that is a kind of a growth we see in general for the company as we see it, if we look at it on a sort of a higher, longer term level. So if you look at the significant event, it's been a fantastic quarter. First of all, we started with the US Fortune 100 early in the early in the year with with an order close to 10 million. We also got another new order from the European Space Agency, about seven million. We had an order from Thorium Space. I'm going to talk more about that. We also appointed a new chairman to the board of directors and we also secured liquidity and supplements during the first quarter. I'm going to go into how we secure those 82 million. Also did a very strategic deal within AI photonics for the next generation AI solutions for 30 and a half million, which is just the start of that project. And then we extended a very important partnership, of course, for the next generation ship sets for Satcom with our European customer. And of course, we also announced my departure, which is sort of I've done a stay all the way to September before I start my new job as a CEO in another company. So this has been sort of significant events during this quarter. And I'm now going to talk a bit more about them in detail. So first of all, the Fortune 100 customer. This was a very important step into the next phase. We are designing 50,000 lasers for further system design and advanced testing. This is a follow up order on the 30,000 devices we got last year. And we are now at about 18 million dollars over the last five year period for this customer. And this is, of course, one of the most exciting projects we're working on. And we're really looking forward to see when this comes to full fruition in a volume project. And of course, you know, we've been talking about this many times. The volume project is pending that we're getting this back from the customer. But we have done the RFP and that is ranging from everything from 30 million per chip per year, up to 100 million per ship year, depending on what kind of device we will be in this consumer electronic solution. So still, we are waiting, but we're getting closer, of course, every day because the day goes on. Then we have the European Space Agency. And this is the first project for us with the European Space Agency. And it's also a rubber stamp on the quality that Sievers has and the value we're building. And this is sort of for the next generation frequencies where you get even wider bandwidth for SATCOM communications. And these frequencies are, of course, very well in line with Sievers in general and how our products are working in the higher frequencies and the higher the frequencies, the same thing in the 6G space, the more important Sievers and relevant Sievers has become over the years. And the partnership with Thorium Space, another 30 million SEC project focused on advanced validation of chipsets designed for space side deployment as well. This is the first time we're in space side anticipated revenue in this year is about 20 million plus. And this is also funded by European Space Agency and Polish government organization. So great project for us. And this will, of course, secure growth and revenue over the year. Also, Bami Bastani, he's been working 42 years in the semiconductor industry in the US, been working for Global Foundries and the board member of Global Semiconductor Alliance. And as a strategic advisor before for Sievers, he's now also nominated as he was nominated as chairman and now also elected chairman in the AGM and also working part time also as an executive chairman for Sievers Semiconductor, supporting us in the US. And the liquidity of 82 million, how did we secure that? So we announced a loan facility of 50 million, whereas 35 million was a convertible bond. And another loan recently was also signed with the UK government, which is a seven year loan for 17 and a half million more. And also we had some previously blocked bank funds of 14.9 million in a project with one customer that is now released. So the total in this quarter, which is very positive, 82 million, and we comes out, I think, with about 70 plus million in the end of the quarter. And we are reducing our burn rate as we go quarter by quarter. So this is a really important step for us to avoid any sort of further funding for the company. And of course, this very strategic deal, this is a sort of an AR labs type of customer, but the wider portfolio initial contract value was $1.3 million. And this customer is moving into manufacturing with us, then hopefully around 2026. And we are talking millions of units per year in their forecasts. And of course, with a 50 to $150 per unit, that is of course a massive possible growth, including in this project. So very important step, second important company in the AI photonics business for us. And we have a lot of traction also in this from the OSC conference. And we can see more of that in the future. And one of the biggest deals we did during the quarter was this 50 million deal with our well known strategic Satcom customer. Now this is actually for the next generation solution. And we already have a solution with these guys on the beamformers that we are developing. And we already shipped 40 million sec approximately from those volume orders. So this is already in volume for the current solution. And now we want the deal for the next generation that will sort of develop during 24 and 25. And hopefully moving into volume production in the end of 25. So now we're coming to finance details and Lotte, the floor is yours.

Yes, as Anders said, we had a stable revenue in Q1 in line with prior year. So revenue of 56.1 million. The really positive thing was that photonics grew with 18%, which is a higher growth pace than we have seen before. And specifically product sales increased with 98%. So in order to scale on the business, the increased level of product sales is really important for us. So as you can see at the bottom graph, product sales increased with 9 million in absolute value and the NRI product sales decreased with 11 million. And the decrease in product development is because we had a really high level of activities in Q1 2023 that was partly executed by external consultants. So I think what is important to point out is that revenue will vary over quarters based on the phases in the different customer projects. The portfolio of customers and projects are still not large enough to having them even out completely. So the success in the projects shows in the numbers as well. So I think, can move on. Just looking at then the quarter in perspective. Again, we had a really step change in revenue levels in Q4 2022 and we are maintaining that higher level. So we have several consecutive quarters on that level. And Q1 2023 again was 113% growth. So we are not meeting that in full, but almost in line with that. And on the right hand side, again, to maintain the higher level of product sales. So in absolute value in Q3, we reached the all time high level of 18 million. And we followed up in Q4 of 13 million. And now we also have a higher level of 17 million in absolute value. So it's a lot of data on this sheet, but in terms of the segment sale, again, 98% growth in product sales. And if we zoom in in the two business units, in photonics, we have had for a longer period of time, a healthy level of product sales. And that also grew with 7% in the quarter. In wireless, we grew with 219% comparing to Q1 in 2023. So that is really positive that we are able to increase that in line with the success of our customers moving forward. And also looking at the share of geographical split on an overall basis for the company, we have 36% of our sales in North America and 64% in Europe. But if you zoom in into the two business units, it looks a little bit different. So in photonics, we have 78% of the revenue in North America and 22% in Europe. But if we look at wireless, at this point in time, we have almost all sales focusing on Europe. So 97%. And then turning the growth and the revenue into EBIT and the profitability. So, we can see again on the left hand side, we compare the step change in Q1 from 2022 to 2023 in the first level and then again maintaining that level in 2024. So even though we're not growing revenue further, we are improving profitability. So looking at both EBITDA and adjusted EBITDA, you can see it's a clear improvement compared to corresponding quarter the year before. So we think we are in a good position in terms of further continuing to improve our profitability and then following that improved cash generation as well.

Okay, thank you for that Lotte. Let's go into the market update. So if we look, for example, at how the volumes in the SATCOM business will develop. And even at smaller volumes, you can see that the content here and the chipsets you see here is about $10,000 per terminal. And we already shipped 40 million SECs so far in an early phase of this development. And now we're at $10,000 per terminal. So this is important to understand when these volumes will ramp over time now and we already shipped us, you know, 40 million. Also another important piece here is, of course, the niche in the tractor train, which we are very proud to be part of. And we talked about this quite a lot before. And there has been some delays with the Caltrain electrification project, which was about to sort of roll out earlier about the whole train system is now sort of projected to come into fruition in fall of 2024. And then of course, I want to ride that train and test our capabilities there. But that is a very interesting project to be part of and a great window for severs to show our technology when that comes to fruition. And of course, it's already rolled out in Spain and the UK and the first carbon neutral systems that are available for truck to train applications. Also, as I mentioned in the CEO word, 5G is now showing some positive signs. We had a really good mobile world congress and we're now seeing new NRE and volume projects in many of these markets and they could materialize already in Q2 and Q3. So we see products in India, in Japan and Europe and America with the even larger tier one customers. So we hope to come back in this in the coming six months and give you some positive news on what's happening also in the 5G part, which has been sort of a bit slower due to the changes that we've seen there before. And of course, the AI photonics for data centers is really something that we have seen a very positive move in now. And we also see AI labs moving into the next phase here and having discussions on that as well. And we have a very positive OFC conference in San Diego where we all were. And the reason for that, of course, is that the large language model for AI are growing and growing and the capacity for components and hardware is not growing as quickly. So that shortfall is where AI photonics will be very important because you can scale with hardware and communication between hardware rather than scaling the actual GPUs in the future. And of course, you can do that only with photonics rather than electronics and where photonics actually could sort of provide a 10x lower latency, 8x more power efficient. So, you know, instead of 100% of the power, it's going to be 10% higher data rates, 5 to 10x and a cost reduction on about 90%. So this is a win-win for everybody to do this. And it's on its way to get to fruition. And as you know, we signed a very important project with AI labs in July last year and we're working on that now to deliver it. And then the next phase is going to be prototypes and volume prototypes for that. And hopefully, we'll come back on that in the coming three to six months when this project is done, where we will see bigger projects from them. And also recently signing this new deal with a similar customer. And we're also seeing new possibilities with this customer short term within the coming year. And also, of course, the big opportunity with this customer and AI labs when volumes comes to fruition in 2026. And as you know, we went to the OFC here in the end of March. AI labs demoed with our 16 terabit bi-directional data, which is so crazy numbers. And we also had a demo in our booth with their staff for four terabit bi-directional. So this has really taken off and we had more interesting meetings than I think we ever had. And the team said that this is the best OFC we've seen. Ever. Already off to the first day. So very good insights, good meetings. And this is going to come a lot from that during the future. And of course, the reason for this is that, you know, if we look at what, for example, Nvidia do today, they can do 900 to 3200 gigabits per second in the latest thing they talked about. And now we're talking about, you know, 16,000 gigabits per second and reaching 100,000 GPUs rather than 256. So and the energy efficiency is a 10% only used energy rather than at the current solution. So this is going to be a game changer for building these clusters. And if we look at the overall products here, of course, you have the current data centers where you do the pluggable optics. Then you have the DFB arrays where we are on what I'm talking about today here with eight 16 channels, 16 terabit and sort of connecting all the different GPUs within the solution. But also in the next phase, a bit later, you're going to see photonic compute where you actually use to compute the AI solutions. And that's where we also have with the new customer a future when they get to that market, because they are also a bit wider in their portfolio than AR Labs. And here you can see the example of where sievers are in this AI solutions. If you can see the AR Labs terrify up there on the right hand side and which integrates directly with the GPUs on the silicon to silicon connectivity. And then you have the AR Labs supernova on the frontier where sievert has our DFB lasers. And these lasers has a huge content when it comes to the ASP of the solution between 50 to $150, depending on volume. So as soon as this market takes off, the content is going to be huge for for us in that sense. And just to elaborate on how big that market is, you know, in 2025, there will be some something like 15 million GPUs sold. And there is, of course, four laser rays per GPU, at least. And, you know, adding this up, it's a lot of time you can look at. And of course, if we look at the annual deployment of five data centers, I mean, that's 20,000, 2500 GPUs, 250,000 GPUs in five data centers, but current customers are talking depending on customer and their customers, everything between a million to six million of these lasers per year. So there are major volumes for this in the future. And we already sort of working with two very positive customers and making great progress on with them. So summarizing, you know, if we look at the company over the last eight years, and the growth over the seven years, this has been 44% growth. There are some people that saying, where is the growth, there is growth and severs have delivered 44% Tegar over this period, which is much better than most companies have, which is important to remember. And you have to remember and look a little bit over time, everything doesn't go, you know, quarter by quarter straight line, it's also ups and downs and depends on little bits. And that's what I'm going to come to in the end. This is going to be driven by that we are now in the next phase coming into the volume phases. And we have already talked about that. Our wireless business grow hardware volumes and over 200% in Q1. So we are in the right direction. And we're going to move from 30% product revenue to 80% product revenue in 2026. And that will of course, increase revenue and growth. So if we look at that, and I'm coming to that now, I mean, summarizing the quarter, it was a stable quarter, but it of course, quite difficult to grow heavily after a fantastic quarter as last year of 113%. However, even so without growth, we actually improved the BTA with good cost control, better product mix and so forth. And also great quarter when it comes to new these hundred million building the pipeline for continued growth, loan and cash secured for securing funding. But then looking at the growth trajectory, we have said this many times, it's going to be lumpy quarter over years and so forth. But there are a short period now of consolidation during parts of the first half, but we're preparing for continued growth in second half of 24. As I mentioned, historically, Severs has grown before 40% CAGR. And we are assuming that we've continued doing that kind of growth on average over the three coming years, but it will go up and down per quarter. But having a long term view of the company and that growth that is a fantastic growth for most companies. And we are accelerating this growth, of course, more and more as we come into these AI volumes and so forth during this period. And volume production is going to drive this organic growth by increasing the volume as I mentioned for 30 to 80% at the end of the period. And then there are further possible upsides that this growth could be even bigger if we include the Fortune 100 and the other AI customers we're working with and so forth. So there is a huge potential for growth in the company. And we secured most of the customers already to make this growth happen. We don't need to add more customers. Even so, we do that on a continuous basis. And we are very bullish, I think, about how that looks like over the coming period. We had quite a lot of attendance today over 150 people, I think, was working. So thank you so much, everybody. And be sure to hear more about Severs in the coming months. Thank you. Bye bye.