Good afternoon, and thank you for joining us. Today, Stefano Beretta and myself will dive into the first half 2023 results, also sharing our view for Q3 of this year. As usual, Q&A session will follow at the end of the presentation. We closed the first half of the year at EUR 196.3 million, confirming the sequential upward trend in the Q2 we anticipated during our call in May. Also beating Q2 guidance in terms of revenue, mainly due to the advanced shipments requested by some of our clients. Our reference markets maintain the same path registered in the Q2. From the end market perspective, we are still facing a sluggish consumers applications market and inventory adjustments, which seems to be slower than expected. As opposite, automobile and artificial intelligence markets are keeping growing.
Since our last call, the big trigger that is shaking the semi space is the artificial intelligence potential impact. As mentioned, we have been able to register patents this year, and we are confident to be in the best shape to serve this market in the future. Said that, I want to clarify that in our view, the growing path confirmed in the artificial intelligence in the second half of this year will not enough to offset the overall cyclicality of the business, that we estimate will be affected by lower volumes in the consumer market and the related inventory adjustment. Now, let me turn to Stefano Beretta, who will give you more colors on our figures.
Good afternoon, everyone, and thank you for joining us. As you saw in our press release, revenues in Q2 were approximately EUR 105 million, registering a decrease of 18.6% compared to the same quarter of prior-year. With a remarkable 14.9% sequential increase compared to Q1, and approximately EUR 4 million above the high range of the prior guidance. Consequently, gross profit and EBITDA decreased consistently compared to Q2 2022, to EUR 55.7 million and 37.8 million, respectively, but still representing a remarkable 53.1% and 36% on revenues, despite of the already predicted contraction of revenue. As you can notice, gross margin has been confirmed in the mid-range of the guidance, while the EBITDA margin at the high range of the guidance were raised at the end of prior-quarter.
Moving to the year-to-date figures, total revenues were EUR 196.3 million, with a year-on-year decrease of 21.6%. Gross profit was EUR 101.8 million, 31.7% lower compared to the same period of 2022, representing a margin still close to 52%. EBITDA closed at EUR 64.7 million, down 39.4% compared to the same period of 2022, but still representing a remarkable margin of 33%. Looking at this page, you can see a summary of the comparison between the financials at the end of the first six months in 2022 and 2023.
Just to give you some color on that, revenue year-on-year decrease of 21.6% was driven entirely by the market downturn, initiated at the end of 2022, that largely impacted the volume of orders and related deliveries. On, on a gross profit level, we saw a decrease in the margin from 59.6% to 51.9%, which is the result of maintaining a consistent organization of prior year, in particular, in terms of labor and capacity, together with a significant reduction in revenue. In fact, it's worth to remind that at the end of June 2023, we currently employ approximately 200 people more than at the end of our full year, 2022.
Moreover, we registered an expected penalty with a supplier for approximately $1.5 million, due to a partial cancellation of a purchase order that we already disclosed during the presentation of Q1 results, as well as a product inventory reserve of approximately $5 million, recorded in Q2 of the year. Consistently with this information, the EBITDA reflected the same trend, showing a decrease in the margin from 42.6% to 33% year-on-year, even including a positive Forex impact for approximately $1 million. We wish to highlight, in this case, that the EBITDA is also impacted by a consistent amount of R&D costs, approximately $23 compared to 22 million in the same period of 2022, representing now approximately 12% of the half-year revenues.
To confirm once again the mindset, the commitment of our leadership to develop products expected to generate higher revenue starting from the end of 2023. Net financial position is down EUR 43 million in the six-month period, due to essentially EUR 31 million generated through the operating activities, together with EUR 1 million generated through the combined impact of financial activities and Forex. More than offset in this case by EUR 32 million absorbed by investment of the periods, CapEx, and EUR 39 million due to the payment of current tax. Still inclusive of EUR 18.7 million in advance and related to fiscal year 2023. Once again, investments in the capacity and R&D are not planning to stop in the remaining part of 2023. Consistently, with a weaker market outlook, we will remain cautious.
Let me turn to Stefano Felici, who will share with you some more comments on the recent acquisition announced yesterday.
Thank you, Stefano. Let me give you more color on the acquisition of Arbor Electronics we just finalized yesterday. Arbor Electronics, based in Santa Clara, was a part of a Chinese group, Fast Print, and it is focused on the manufacturing of highly specialized printed circuit board for the semiconductor industry. Due to the high level of technological evolution of their products, Arbor Electronics was already one of our key supplier for the most advanced PCB. We know each other very well. I think this is an edge in the integration process that will follow in the next months.
The company serves, and will continue to serve, the biggest players and probe card manufacturers in the same space, with 108 employees occupied in two plants in California, as well three design centers in the U.K., Philippines, and Malaysia. As reported in the press release published yesterday, the total amount paid for the acquisition, full in cash, has been in the region of $50 million. The rationale behind the acquisition is to fully integrate our manufacturing process. As you know, we, we designed PCB, MLO, ceramic plates, and contact probes, but before the acquisition, we fully outsourced PCB manufacturing. During the last quarter, we finally got the opportunity to take over the market and find suitable target, which was perfect for our strategy due to their, their high level of technological footprint.
Being fully vertically integrated is definitely a competitive edge, both in terms of costs and process optimization, and also for R&D leverage. You know how the complexity boosts the development of new testing solutions in our industry. We expect to benefit from the acquired skills to foster new products development process. In addition, they also fit one of our growth drivers: entry into the final test market. Arbor is already involved in the manufacturing of final test board, so we expect also synergies to speed up the development of products to serve this segment. Now, I hand over to Stefano Beretta, who will comment our guidance for Q3 of 2023.
As a preliminary comment, we know that the production adjustment, in particular for the consumer electronic application, is expected to continue for the time being, and the recovery in demand for testing is likely to be milder than originally expected due to the persistent excess capacity in customer supply chain. As a result of this trend, the market weakness initiated in the Q4 2022 is still confirmed throughout 2023. However, despite we see volume still below the level of prior year, we are confident to see a shy but sequential improvement also for Q3. Finally, it's worth to remind that Arbor performance will impact Q3 group financials starting from the acquisition date, August the eighth, expecting a moderate and temporary dilution of the group profitability, at least until the end of 2023.
For Q3, we expect revenues to be about EUR 111 million ±3%. Gross profit in the range of 49% ±2%, and EBITDA margin in the range of 32% ±2% as well. Thanks, everyone, for your attention. Now we can move to the Q&A session.
Thank you to the speakers today. 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 unmute your line, state your company name before asking your question. Thank you. The first question today comes from Mr. Giovanni Selvetti. Please, Giovanni, the floor to you.
Okay. Can you hear me?
Yes.
Yes.
Hi, everyone, thanks for taking my questions. A few on my side. The first two are on H1 results, and the other ones are on the recent acquisition of Arbor. The first one is on cash absorption. I was wondering if you can help us better understand the moving parts of the cash absorption in Q2. Was that due to a lower cash generation from operating activities, or? Well, also on CapEx, you stated that CapEx amounted to EUR 32 million and mainly related to the upgrading of production line. I was recently listening to the conference call of your main competitor, stating that the CapEx is expected to increase in the second half. I was wondering if you see if you foresee a similar dynamic there?
The second question is on the guidance for Q3, specifically about gross margin. I think that maybe you answer at, at, at the end of the, of the speech, but I was wondering why the gross margin is expected to be down around 49%, which is sequentially lower than the first half. Is this mainly related to Arbor Electronics? Finally, the last question is on Arbor again. I was wondering if the current production capacity of Arbor is enough to source PCB for the whole group, or if Technoprobe will still need to buy part of the PCB externally? Because in the presentation, it says that Arbor now serves the top 10 probe card players, if starting tomorrow, Arbor will just provide PCB to Technoprobe. Thank you.
Thank you, Giovanni. A lot of questions. I hope to answer, to remember all of them.
I-
Starting from the cash flow statement. What I mentioned before, the absorption of in Q2 2023, is essentially due to the tax payment. If we select and we separate and segregate the various stream of the cash generation, we still confirm a EUR 31 million cash generation from the operating activities, offset almost entirely by from the CapEx investments, so EUR 32 million investments. The reduction is due to EUR 39 million as a current tax paid.
Part of that is due to the remaining part of 2022, that was paid at the end of June, and the other portion for EUR 18.7 million, is already the down payment for 2023, for which we do not expect to have to pay more taxes for the rest of the year. It's, essentially, it's a time reduction.
Okay, in terms of CapEx, is it fair to assume, roughly the same amount in the second half, or do you see this number going up?
In the second half, we expect at least the same level. We are currently evaluating how and when to invest more money, especially, potentially in a restructuring of Arbor or even in other investments, especially in Taiwan, where we are developing... We're still developing our MLO facility. There are a lot of projects going on, and as also our competitors are doing in the same time, we are not stopping our investment at all. We are continuing investing in all our technologies and all our facilities, both to increase the capacity, and this is the point number one, but also to renew part of our, our machines and our equipments. Absolutely, it's something we, we really care about.
Okay. Okay.
Getting to the guidance, question.
Mm-hmm.
Back to the guidance question. Essentially, the dilution is almost entirely related to the consolidation of Arbor. Arbor currently has a, let me say, break-even P&L, so a very small gross margin and a break-even EBITDA, currently, considering that Arbor, together with all the players in the same space, are facing probably the worst year in the last 10 years. Their, their revenues are 25%-30% lower than prior year. That's why, the dilution on our accounts, are probably estimated in the range of 2% in total margin and 1.7% in the EBITDA.
Yeah. Finally, I can answer to the, your last question. Our intention is to keep Arbor kind independent, so they will be able to serve all the semiconductor industry, including all the other probe card manufacturer. Of course, our intention is to load them with more business on our side. At this moment, they... We expect to, to, to load them at full capacity, and that will be not enough to cover all our needs. Considering also that we, we have the plan to go in the final test and market and to develop more business, we think that they will not be able to fulfill all our needs, including the needs of all the other players.
as I mentioned, just right now from Stefano, we are going to, to make a business plan and, probably to invest more to increase the capacity. So...
okay, okay. thank you very much. maybe just on, on this point, roughly, how, how much of the, let's just say, PCB needs can Arbor currently cover? Just to have an idea on how much you guys spend in PCB per year, and how much can this save by having, you know, Arbor internally. Just to have a rough figure, you know, like, 30% or I don't know.
Currently, Arbor cover all the big players of the space, especially for probe cards. Their turnover is, let me say, more or less equal among Technoprobe, FormFactor, and that's a couple of other players. In this case, going on and being a part of the group, we will be able to address all our need of PCB through Arbor capacity. Arbor has already the right capacity to cover the entire need of Technoprobe. If this is your question.
The question is, how much would be the saving, having Arbor.
I mean, in, and, and rather than, rather than, you know, going externally and having the capacity inside, I was wondering if you can provide a figure on how much you expect this to come in terms of savings?
Well, I, I don't want to put a number right now.
Mm
... because this is something we have to evaluate. This is not only a matter of internal saving, because we have to respect also transfer pricing rules for the U.S., between the U.S. and Italy. We, we need to, to work on that.
We'll definitely have some saving because that will be done internally, and definitely we'll have that part that is be a saving. Maybe we, we'll be more precise next calls.
Okay. Thank you very much.
Thank you, Giovanni, for your question. Our next question today comes from Mr. Gianmarco Bonacina. Please, Gianmarco, the floor to you.
Yes, good afternoon. Just a clarification again on the guidance. Given you provided the $50 million for last year for Arbor, assuming this will decline by 30% this year, basically, I calculated they have a run rate of $3 million per, per month. Just to clarify, your $111 million revenue guidance for Q3, is that kind of $105 million on a like for like basis? You are indicating that basically your business, excluding Arbor, will remain flat sequential, and then we add a few millions, so $5- 6 million for Arbor. Is that, correct?
Yeah, that's almost correct. It's not really flat. We expected a small growth for the probe card business, standalone. We expected something like EUR 107- 108 million in Q3, Technoprobe standalone. The contribution of Arbor is very minimal.
Okay. The other question on Arbor is just to clarify the strategy for next year and in the midterm. Clearly, some of the revenues are internal, so I guess you will have an illusion because they were providing to you. In the midterm, do you expect the factory of Arbor to provide only internal capacity? It is not likely that we have to increase revenues, but basically you will have an improvement in terms of your cost. Just to clarify, how you see the contribution of Arbor in the midterm, and if you expect Arbor to basically provide the PCB also to third-party customer or only for internal use?
As mentioned, Arbor will continue to make business with all the current customers. Okay? In addition, as in Technoprobe, we had several suppliers right now for PCB, of course. Our intention will be to give priority to... If Arbor, of course, has the right capacity, will be to give priority to Arbor. Our intention is to keep all the other customers alive and to avoid any disruption.
Okay, clear. Just the last one for me, in terms of the, let's say, the strategy on the, on the final testing. In the, in the last call, you mentioned that you were working to launch on the market in 2024, some new products, in final testing. If you can update on the roadmap here, if you are confident to launch these products, in the first half, in the second half, and if you have an idea in the kind of range of, let's say, sales from this new product, regardless of the evolution of the rest of the traditional, probe card. Thank you.
Yes. I think we are on... We are still in progress with qualifications, and so we expect to be in production, I mean, in the market, the first half of next year. It's still too early to, let's say, to have a, to disclose the numbers, of course. We... Probably in the next calls, we will have a better forecast on that.
Thank you.
Thank you, Mr. Bonacina. Our next question today comes from Mr. Adam Angelou. Please, Adam, the floor to you.
Yeah, hi, it's Adam here from Bank of America. Hope you can hear me okay. Firstly, on Q3 guidance, just wanted to double-check. I mean, I guess there would have been expected to be some benefit from the seasonal launch of a smartphone in Q3. Just wondering there, is that, you know, anything on maybe lost market share? If you could touch on that, and maybe I'll just go in one by one with the questions.
Okay. At this moment, we are, we still very strong in market share for that kind of segment, but we still see a weakness of the market. We haven't lost any market share.
Okay. Okay, understood. Second one, just the sequential recovery expected in, you know, Q3 versus Q2, and clearly a little bit lower in terms of sequential growth. Just wanted to understand, you know, what's, what's driving that. You know, presumably, the market is further along in the inventory correction, just why is it lower? Maybe kind of tied to that, just I think you said that there was some advanced shipments requested from some clients in Q2 numbers. Maybe if you could just kind of explain a little bit further what, what was, what was driving that?
Again, here, in Q3, we still see, as I said, the consumer market, especially smartphone and PC, still pretty weak. On the other side, there are two segments that are picking up very strong, which is still the automobile market and the artificial intelligence. These two are not enough to offset the weakness of the consumer market. This typically is bigger. That's why at the end, we see a Q3 that is it's kind of flat compared to Q2.
Also.
Yeah
... also the cutoff, as we mentioned before, at the end of Q2, we were able to anticipate a couple of supplies, so for about EUR 3 million. That's why we went well above our guidance, so we were EUR 4 million above the high range of the guidance. If you consider that, EUR 3 million were expected to be shipped in Q3, you can do easily the math. We, we would have closed one or two Q2, and we will have a third quarter with EUR 3 million more. On a sequential, on a sequential basis, you will have seen the same growth, more or less.
Yeah. Just that, that EUR 3 million, can you help us understand what that was related to and why it was earlier than you previously expected?
We were able to manufacture them and to prepare them, just right before the end of the quarter. We agreed with the customer to shipment them, just on the last couple of days of the quarter. It was a pity to miss the delivery and to make a favor to our customer, so we decided to move forward.
Yeah
It's all positive. It's a win-win situation, both for us and for the customer. Simply like that.
Gotcha. Sorry, the market that was in, can you say?
Sorry, say it again?
The market segment, was that consumer, AI, automotive?
Well, it's a consumer part.
Right. Okay. Yeah, just second last one, if you could just update us on the revenue splits. I think you provided them last year, sorry, last quarter, between the different markets, if there's been any major changes there?
No, there-
It's consistent with the quarter before.
Yeah, it's consistent. We have about 20% in automotive industrials, 50% smartphone and PC, and 20% data center and AI.
Okay. That's great. Thanks. Maybe just the last one. I know your visibility doesn't stretch multiple quarters, but if you had any kind of initial thoughts on Q4 and maybe your views into 2024. That's all from me. Thank you very much.
Q4, it's too early, really. It's too early for the Q4. We are now focused on Q3. We have not that visibility for Q4, but we still believe that the sequential increase will be confirmed also for the end of the year. This is our what, in our mind and in our plans.
Okay. Thank you very much.
Thank you, Mr. Angelo, for your question. Our next question is a follow-up question from Mr. Giovanni Selvetti. Please, Giovanni, the floor to you.
Hello, everyone. Stefano, I mean, just maybe a, a curiosity because I know that historically you guys have decided to stay out of the memory market, but in, in, in the last conference call, your main competitors stated that high bandwidth memory, HBM, is one of the key enabling components alongside of GPU for generative AI. I was wondering if in the future you, you may also want to enter this market?
actually, we are already entering in the HBM market on the very high complexity products, so very fine pitch. We are also developing technologies for the main memory market, and, so that is a work in progress. We are confident that we are also going to that market probably starting from next year.
Okay. Okay. Thank you.
Thank you, Mr. Selvetti. Our next question today comes from Luca Bacoccoli. Please, Luca, the floor to you. Okay. Luca, can you hear us? Luca, please write your question in the chat. If Luca cannot hear us, I will now hand back to the speakers for any kind of final comments before bringing this presentation to a close. Please go ahead.
I'd like to thank you, everyone, and we'll talk soon, in the next three months. Thank you.