Good afternoon, and welcome to the EnSilica plc investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated in the right corner of your screen. Just simply type in your questions and press Send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll, and I'd now like to hand you over to Mark Hodgkins, Executive Chairman. Good afternoon to you, sir.
Good afternoon, everybody, and thank you for coming to our Financial Year 2023 Annual Results Presentation. We hope that in the next few minutes and the next hour or so, that we can shed some additional light on how we have performed in our first full year as an AIM-listed company. We're gonna begin by... I'm gonna begin by asking Ian to introduce himself, and then we'll get into the meat of the presentation.
Hello, everyone. I'm Ian Lankshear, CEO of EnSilica. I'm an electronics engineer by training. I started my career in one of the great British companies, Plessey, that's became Siemens Plessey. I moved into semiconductors in the mid-1990s, working for Hitachi, and then Nokia, developing ASICs. I co-founded EnSilica in 2001. I've actually met Mark in 2015, and I'll hand over to him to introduce himself.
Thank you, Ian. So I'm a graduate of Manchester University, qualified chartered accountant, quite a long time ago now. And I've been with EnSilica initially as non-executive chairman and more recently as executive chairman since May 2016. Formerly was a partner with both Grant Thornton and Ernst & Young in M&A, latterly, but retired from the profession in 2005, and since then, been managing engineering businesses, both private and public, until I joined full-time with EnSilica just about a year ago. Thanks so much.
Okay, thanks. So I'm going to just give you a summary of the company. EnSilica was established in 2001, initially to provide design consultancy to semiconductor companies, so those are companies with their own semiconductor design team. I mean, we had clients like Nokia, Arm, Panasonic, Sony, but, you know, we also worked with mixed signal companies like Wolfson and Dialog Semiconductors, so we really saw the value of mixed signal semiconductors then. In 2016, you know, shortly after I met Mark, we worked on migrating the business model from a consultancy model to a fabless ASIC design and supply model.
In this model, the cost of designing the ASIC is shared with the client, but the upside for this is that it brings in long, recurring revenue streams from when the chip is in production. And that comes from either the sale of the chip or in some cases a royalty stream when the chip is produced. So, today we have three chips in the supply stage. This includes a high-end automotive chip for SUV vehicles that hit production in June 2022, and the estimated revenue for that is GBP 40 million over six years.
We have six chips in the design stage, and this includes an industrial ASIC, which is expected to hit production in the end of next year, with an anticipated revenue of GBP 30 million over seven years. The other chips will be in production between early 2025 and onwards. As I said, we have a very strong pipeline of chips for production. As well as that pipeline, we have a strong order book, and, you know, a sales pipeline with a lifetime value of over GBP 350 million. Near-term cash flow, we still use the consultancy business.
An example of this was a recent announcement last month of GBP 2.4 million for high-end design consultancy contract.
The highlights of the year, very quickly. I'm very pleased to be able to say that we beat expectation on all lines in 2023. Revenues were up 34%, operating profit was up 18%. EBITDA, which is a key measure, I understand, was up 50% and was ahead of what we announced in April, when we said we were gonna do better. Profit after tax is up quite a lot. EPS, no one cares about anymore, but I do, and that's up a lot. Importantly, cash was good at the end of May. To put that in context, at the end of last week, cash was GBP 2.3 billion.
In summary, what I'd like to say is we've exceeded our IPO expectations, we've exceeded our in-year upgrades, we've developed a strong sales pipeline, which we will talk a bit more about in a moment. We've kept regular contact with all our shareholders through the year with regular contract updates, and we've made significant progress, as Ian has just highlighted, on the development of our supply revenue streams.
Let me just take you now through sort of some of the highlights of the year ending thirty-first of May, 2023. In June, just shortly after our IPO, which was in May, we had an automotive ASIC that we were developing enter production. The initial supply revenue expectation for that was GBP 25 million over seven years. In July, we won a major contract with a leading European industrial OEM for factory automation ASICs, and that contract was worth over GBP 30 million over seven years, and the NRE was fully funded by the customer.
I mean, this is a really great market. I mean, there's a, you know, a lot of disruption going on with AI and additional cybersecurity features, meaning that there's a lot of ASIC redesigns. So in December 2022, we secured two new contracts with an existing customer worth GBP 3.6 million, and then in February 2023, we won a GBP 5 million satellite broadband contract awarded by the European Space Agency, and this is to address the lower orbit satellite market. So actually the user terminal market, which is a large consumer of millimeter wave and mixed signal ASICs.
In March 2023, we strengthened our balance sheet through a GBP 2 million raise, where we at 70p, which is a 40% premium on our 50p IPO price. We talked about further consultancy work, a GBP 2.4 million consultancy contract, and in April 2023, the communications ASIC we were developing, we had increased the scope of our work, and, you know, that led to an increased revenue up from GBP 5 million to GBP 15 million, which comes from royalties. So the automotive ASIC we talked about was launched in June at the beginning.
We had an upgrade on that, where it was being designed into additional vehicle models with the same OEM. So the supply revenue from that is, you know, then up from GBP 25 million to GBP 40 million. Okay, back to the numbers, and just go through those. As we've already said, revenues are up by 20-odd percent. Gross margins are better this year, and you're gonna see that happen quite a lot over the next two, three years. It won't be quite so dramatic next year as this year, but, you know, as we get more supply revenues, the margins will start to move upwards, and we expect to get up to around about 45% in due course. Not, not this year, but in due course.
Need to bear in mind the tax number, that's a credit. We are a great beneficiary and a grateful beneficiary of an R&D tax credit, and in this current year, just finished, the claim will be GBP 2.2 million. The reason it shows as a lesser number there is we do pay some tax in India, which nets off, and there's timing differences as well, the deferred tax. So that's what goes in the P&L account. But the cash effect, as you'll see when we get to the cash statement, is GBP 2 million. Profit after tax is high because of the tax credit is so big, and the EBITDA very strong, up 50%. We're going to start showing you on a regular basis some analysis of our revenues.
In the last year, our chip supply started to grow. You'll see this grow a little bit more in 2024, 2025, 2026 and onwards. We're quite pleased that it's shown some growth as early as this after IPO. The NRE has increased; that reflects the number of chips that we've got in development. Ian mentioned just now we've got six in design. The revenues that are associated with the fabless model rose from GBP 8.2 to 11 million. The consultancy revenues—we're keeping that business going. We're not looking to grow it particularly, but it is a very useful generator of cash flow.
The demand for our services is high. It allows us to be flexible with our staff, and it smooths out the revenue line and the cash flow line. So you can see that continuing in the future, but as a percentage of the total, consulting revenues will decline. Then moving on to the balance sheet. The big number there, of course, is the intangible assets, which is the capitalized development costs. Those represent 689 chips in total. Each of those chips have been assessed by management as being viable and have good revenues attached to all of them in the future. Our calculations have been worked over by the auditors in great detail.
In fact, I can tell you, it's a pain in the neck, but they've done a very good job, and they are satisfied that the carrying value is realizable. You can see the cash there, GBP 3 million. It looks down from last year. Bear in mind, in 2022, we actually completed the IPO, just a few days before the year end, so that's the IPO cash sitting there. Not surprisingly, we spent the IPO cash, we have generated some of our own as well. So that's why cash is down. We're quite pleased with our GBP 3 million, and as I've said, at the end of the month, end of the week, last week, cash balance was GBP 2.3 billion. Debt is GBP 4.1 million, that's down by 800,000.
We're in line with all our repayment schedules. We've met all the demands as and when due. The lender is Banque Nationale de Paris, very satisfied with our performance. We have a very good relationship with them, and we will continue to pay that in accordance with the amortization schedule that we committed to back in 2019. Just to sum up there on the cash, net debt cash situation, we've got net debt at the moment, just over GBP 1 million. Last year it was net cash. Bear in mind, last year we had all the cash from the IPO sitting there, so that's why it's moved the way it has. We're hoping to reduce that net debt position quite significantly in the future and as quickly as possible.
So, just going on the cash flow.
Not a lot to say there. You can see, just to explain, the tax receipt number looks very high in last year. That's because pre-IPO, we needed to convert both 2021 and 2022 accounts to IFRS 16, which meant it took longer, and we delayed submitting our tax returns because we hadn't signed off the accounts, so we couldn't submit them. And then we submitted two very quickly in succession. So we've got two years' tax receipt in last year in cash terms. The investing activities is all about capitalization and development costs to do with our customers' chips. Okay, so now I'm just covering the progress since the start of the financial year from the first of June 2023.
So, in August, we announced that the satellite broadband chip had a lead customer. So that was the one I mentioned where we had an award of GBP 5 million from ESA towards the development of this chip. And this relates to a proprietary satellite broadband chip. The contract, as well as including funding towards taking the chip to production, also included the first 50,000 units. We expect further upside from this from both this initial customers and other potential customers as well. So in September 2023, we won another high-end consultancy contract for the development of a sort of a next-generation advanced node networking chip.
We've said that, you know, we use the consultancy business for generating, you know, near-term cash flows, as well as sort of making sure our, you know, the technology we're working is, is, you know, is close to the cutting edge. In September 2023, we won a GBP 7 million e-mobility sensor ASIC contract. E-mobility is around as, as well as EVs, electric vehicles, it covers two-wheelers, e-bikes, e-scooters. You know, a very, a vast market, growing. This was a contract, again, already was 100% funded by the customer, and we expect supply revenue for that to commence in mid-2025.
So the, you know, the outlook, we've started the financial year 2024 well, and that's both supported by existing contracts as well as new business momentum. We've got a strong pipeline and order book, which, you know, underpins our confidence. And, you know, the board believes the company's well-placed to deliver on the significant growth opportunities within the semiconductor market. So, you know, we've had a successful year. We're pleased with the results. We've delivered on the commitments at the IPO, we've established a good position within the four focus sectors, and that's automotive.
As a reminder there, you know, we have a GBP 40 million contract for, for an automotive ASIC, another design win in e-mobility, which is in that, in that same, in that same sector. Industrial, we're very well-placed. We have one of the world's major OEMs as a customer with a $13 million contract in there, plus another ASIC in that, in that contract, in that sector. For the satellite comms, you know, we've got contracts combined value of GBP 18 million, plus our own chipset, to address that, that growing market. In the healthcare sector, we've developed our own chip, which is being evaluated by several companies.
So, you know, we will continue to execute the high-end consultancy to strengthen our near-term cash flow. So, you know, we have a healthy pipeline, and we're, you know, we're in a good position to deliver on our market forecasts. Okay, that concludes the formal presentation, and we'll now move on to answering your questions.
Mark, Ian, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions by using the Q&A tab, which is situated on the top right-hand corner of your screen. But just while the company take a few moments to read those questions that have been submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. As you can see, we've received a number of questions throughout today's presentation. Mark, Ian, if I could just ask you to read out those questions and give responses where it is appropriate to do so, I'll pick up from you at the end.
Okay, first question is from Simon W. The question is: "Are you not in a crowded market with big players? If so, what gives you an edge?" So shall I take that, Ian?
Yeah.
Yeah. I mean, there are obviously a lot of big semiconductor companies and, I mean, a lot of those are chasing the big digital chips. I mean, but, I mean, our edge is about, you know, it's around mixed signal, you know, millimeter wave beamforming on one side, which is our, you know, around our RF and comms work in the satellite area. And the other area is around, you know, mixed signal sensing chips, things like vital signs sensing controller chips. So we have a real, you know, a real edge in that area. Also, things like high-integrity ASICs, where there's things like functional safety, cybersecurity, so, you know, we...
You know, semiconductors, you know, has niches, and we address some of those niches which are really driven by the mega trends in the semiconductor industry.
Okay. The next question is from Marcus A:... How much of future year revenues can you see as you announce new deals? Are there any capacity limitations as you grow? Can I answer the second part of the question first? We have sufficient capacity to deliver 2024's numbers and probably 2025 as well. However, one of our limitations is always going to be getting good engineers, and there are not enough good engineers in the U.K. We are always on the lookout for good engineers, and we'll take them when they become available. You will have noticed that we have a design center in Brazil.
That design center was set up when a team of mixed signal engineers became available, and they work as a design center for us, connected to our server in the U.K.. So that is our limitation, but we have sufficient capacity to meet the numbers that are in the market, which you see. And in terms of how much of your future revenues can you see, I don't want to be too specific, but we can see currently about 55%-60% of this year's earnings or revenues already, and about 40% of 2025.
As we go forward, obviously that percentage drops, but we can still see about 30% in 2026, numbers of which have not been released and won't be released until the end of the financial year. So that's roughly what it is. But that percentage will grow as the supply revenues grow themselves. So as we put a new chip into production and supply, our visibility on revenues improves all the time. So if you ask the same question in two, three years' time, those percentages will be much higher. Does that... I hope that answers the question. So the next question is from Paul L, and it is: Is intangible investment all internally generated, or are external components too included, actually? What's the split? Provide some details on any external.
It does include some externals, but we would not want to disclose that, 'cause that's commercially sensitive. Yes, it does include some externals. By far and away, the largest portion of the capitalized amount is direct labor of our engineers. The next question is... Sorry, not... It's Simon C. It's a competitive market. What are customers seeing in EnSilica over others, for example, in the recent e-mobility contract?
Yeah, I mean, that's a mixed signal sensor chip, so that's right on target for us. It included things like automotive qualification, functional safety, so very much ticked, ticked, ticked the boxes there in terms of a good fit. We've done similar chips, similar chips before, so, you know, we very much had a competitive edge on that. Okay.
Next question is from Paul L. When you say 100% funded by customer, is that pre-development payment or staged through the development process? I think generally speaking, it's staged through the development process.
Yeah, but, but we do have a good upfront payment in terms of the, you know, the initial kickoff payment, and then stage milestones.
Next question is from David S. It says, "Good afternoon, thanks for the presentation. When do you expect to be self-funding from operating cash flows?" That's a really good question. Partly that depends on how much growth we take on. I would expect certainly by end of 2025 we would be getting close to that situation. So, not that far away, really. 18 months, maybe. I'm just checking I've answered the question.
I think I've answered the question. Okay. So David S.: Can you please clarify that anticipated supplier revenues are based on customer volume projections rather than contracted value? They're based on,
Sorry, just to butt in there, Ian. I think we've just momentarily lost your audio. If I may, I can just quickly request control, just to see if I can bring your audio back. Ian, if I may, if I can just request control, just to take control of your... Ladies and gentlemen, please do bear with us. We're just reconnecting Ian into the room. Hi, Ian. Yeah, we can hear you. Please do carry on. Mark, Ian, we can hear you. Please do carry on.
Hello?
Yeah. Hi, we can hear you, so please do carry on.
Okay.
I think you're just at David S.'s question there.
Sorry about that, guys, the technical problem. We're a tech company, remember? Given the customer-funded development contributions, should we expect your long-run chip supply margins to differ from established players, 60%+ gross margins? I think in the long run, they will probably match 60% for the supply. That doesn't mean to say that the whole P&L account will be supplied by... Sorry, I didn't say that very well. There are elements to our revenues that are not supplied. They will be of lower margin, and so it'll be blended below that. You could see the supply revenue, the supply revenues being done at a margin of 60%. Yeah, it could be that. Yes. Just come up.
So David S., again: Could you please discuss the cost of development of an ASIC and trend in same? What is the typical node for your chips? I'll start with the typical node from the chips on it. It could be from sort of a 130nm to 16nm . So it's quite a range, I mean, that's quite a range, but also the development costs for those can range from sort of, you know, $2- 3 million up to, you know, up to tens of millions of dollars for a high-end ASIC. And, I mean, the interesting thing about analog and RF is that there's no benefit in scaling with the technology.
As long as the technology is fast enough and frequency you're operating, you don't have to scale. So where you have to move into the later node technologies is when you, when you're using lots and lots of digital digital logic. I think that's all the questions.
Perfect. Mark, Ian, thank you very much for that. I think you've addressed all those questions you can from investors, and of course, the company will review all the questions submitted today and will publish their responses on the Investor Meet Company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Ian, could I just ask you for a few closing comments?
Yeah. I mean, thanks for attending today, and we appreciate you attending the presentation and your interest in EnSilica. Yeah, I hope it's improved your knowledge of the company, and we look forward to talking to you again shortly.
Perfect. Mark, Ian, thank you once again for updating investors today. Could I please ask investors not to close the session, as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of EnSilica PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.