Good morning, everyone. We are just waiting for everyone to connect. Please allow us a few seconds. Good morning, everyone, and welcome to the full-year 2023 results presentation of Technoprobe. Before I hand over to your host today, please be advised there will be an opportunity to ask questions at the end of the presentation. I now have pleasure of handing over to Technoprobe's CEO, Stefano Felici. Please, the floor to you.
Good morning, and thank you for joining us. Today with Stefano Beretta, our CFO, I will go through our 2023 results, and I'll share our view for the first quarter of this year. Let's start with 2023. I'm very satisfied with the results we have achieved, notwithstanding the challenging market conditions. Technoprobe has been able to navigate the turmoil in the semis space while, at the same time, achieving its strategic goals. The first half of the year, the parent company moved to Euronext Milan just 15 months after the first IPO on Euronext Growth Milan, in line with the objectives of the listing process and increased its free float up to 25%. The translisting to the main market brought improvements in our processes and strengthening in our governance to comply with the regulatory framework.
In the second half of the year, we finalized the acquisition of Harbor Electronics, one of the top players in the PCB manufacturing space, and we also announced the combined transaction with Teradyne, expected to be finalized within the first half of 2024. As discussed, the strategic rationale behind the two acquisitions is to complete the vertical integration of the manufacturing process and expand our presence also into the final testing space. Finally, we also acquired a majority stake in a startup named MW Plasma, focused on the engineering and manufacturing of microwave systems for chemical vapor deposition to realize materials in synthetic gems. As reported in this page, we closed the full-year with revenues in the region of EUR 409 million. 2023 was a very tough year.
The semiconductor market experienced a prolonged demand stagnation in the major consumer electronics applications, such as smartphones and PCs, and cutbacks on CapEx lasted longer than expected. The rebound in consumer application, initially expected in the second part of the year together with the correction of inventory levels, did not happen, leading to an almost flattish revenue trend on a quarterly basis. Automotive and industrial markets, a tailwind in the first part of 2023, started to show signs of weakness in the last quarters. This trend we expected to continue in 2024. Conversely, the artificial intelligence market grew at a constant pace during the whole year, confirming itself the biggest driver of the semiconductor market in the mid-term. As discussed in our last call, we were able to successfully serve this market in 2023 thanks to our proprietary patents.
Now, let me turn to Stefano Beretta, who will give you more color on our numbers.
Good morning, everyone, and thank you for joining us. So, as you will have seen in our press release, revenues in the fourth quarter were EUR 101.9 million, slightly above our guidance, and registering a decrease of 16% compared to the same quarter of prior year, representing an 8.2% sequential decrease compared to Q3. Consequently, gross profit and the EBITDA decreased consistently compared to Q4 2022 to EUR 42.6 million and EUR 22.2 million, respectively, representing a 41.8% and 21.8% margin, as guided during our prior call.
If you move to the year-to-date figures, total revenues were EUR 409.3 million, with a year-over-year decrease of 25.4%. Gross profit was EUR 199.3 million, equivalent to 40.1% lower compared to the same period of 2022, representing a margin close to 49%. EBITDA, finally, closed at EUR 122.7 million, down 50% compared to the same period of fiscal year 2022, representing a margin of 30%.
On this page, you can see a quick summary comparison between the financials at the end of fiscal year 2022 and 2023. So, just to comment that further, you can see revenue year-on-year decrease of 25.4% was driven entirely by the market downturn, which started at the end of 2022 and significantly impacted the volume of orders and related deliveries. Just to give you an information, revenue expressed at constant currency, so using the same average exchange rates of fiscal year 2022, would have been approximately EUR 11.9 million higher than the reported revenue. In fact, the 12-month average USD/EUR rate for fiscal year 2023 was approximately 1.08 compared to 1.05 for fiscal year 2022.
On a gross profit level, the decrease in the margin from 60.6% to 48.7% was the result of our strategic decision to maintain our organizational structure at the level of the prior year, in particular in terms of labor and capacity, despite the significant decrease in revenues. The consolidation of Harbor Electronics, starting from August 8, 2023, also contributed to the margin dilution. Finally, it's worth mentioning that during the year, a prudent inventory reserve of approximately EUR 13 million was recorded to reflect both a slower inventory rotation, given the already mentioned reduction of revenues, together with a potential faster obsolescence of raw materials and finished products. Again, the constant currency impact on gross profit would have been approximately EUR 6.1 million higher by using the 12-month 2022 average rate.
Consistently, an EBITDA reflected the same trend, so showing a decrease in the margin from 44.7% to 30%, including a negative forex impact for approximately EUR 4.8 million. We would highlight that an EBITDA was also impacted by a significant amount of R&D cost, approximately EUR 57 million, in line with the amount recorded in 2022, almost the same, EUR 56 million, now representing approximately 14% of our revenues, higher compared to the 10% recorded last year, confirming once again the mindset and the commitment of our leadership to continuously develop new products and solutions.
Finally, a picture of the net financial position that is down approximately EUR 52.6 million in the full-year, mainly due to EUR 1.6 million generated through the operating activities, more than offset by EUR 42 million cash out for acquisitions, as mentioned already, for Harbor and MW Plasma, together with EUR 64 million absorbed by investment of the period, EUR 45 million due to the payment of current tax, and EUR 12 million used for the treasury shares buyback. So now let me hand over to Stefano Felici again, who will summarize the overall market scenario for 2024.
Thank you, Stefano. Let's turn now to the market scenario we expect for this year. As of today, the semiconductor space is betting on recovery in 2024. More consumer-exposed markets and inventories appear to be in the process of normalization, with stabilization likely to reach the majority of the industry later this year. We expect this upward trend to gradually contribute to revenues, specifically in the second half of the year. A gradual recovery in demand for high-performance semiconductors is also envisioned, even though a full recovery is expected to take some time due to factors including the weakening of demand for automotive and industrial applications that entered later into the downcycle we are experiencing. With reference to AI, investments into generative AI are starting to become active in 2024, and we are confident to continue to ride this wave. In 2023, we recorded good results in this segment.
You know that we have been able to enter the AI market thanks to the investments we made over the last years to develop proprietary patents. We were partners of the main players in AI last year, and thanks to the results achieved today, our engagement in their new launches has been confirmed. The visibility we have right now encourages us to see 2024 as a year of growth for Technoprobe compared to 2023. As said, we assume that the recovery path will be gradual and more oriented towards the second half of 2024. So I'll turn it over to Stefano Beretta to introduce the guidance for the first quarter of this year.
Thank you, Stefano. So, as said, we project an overall recovery in our reference market with a progressive upward trend in terms of volumes and revenue contribution, more pronounced in the second half. That said, the first quarter of the year is expected to show the following, so revenue to be about EUR 102 million ±3%, a gross margin in the range of 44% ±2%, and the EBITDA margin in the range of 26% ±2%. So these estimates, I want to highlight, that don't include the DIS business contribution that is expected to be integrated during the second quarter of 2024. So thanks, everyone, for your attention. Now we can move to the Q&A session. Thank you.
Thank you to the management team today. We now have an opportunity to ask questions. Please let me remind you to use the raise hand function on your screen, or for those connected via phone, press star nine on your keypad. First question today comes from Mr. Gianmarco Bonacina. Please, the floor to you.
Yes, good morning. A few questions on my side. The first one is about DIS. If you can give us an estimate range for the contribution you expect on the top line, at least, and maybe also for an EBITDA in 2024, considering the closing in the second quarter. The second question is also an outlook on the items that you can control, namely SG&A, R&D, and CapEx. The last one also considering the investment that you plan for increasing the vertical integration, in particular in the MLO. And then the last one is about AI, given you have deep talks with your customers. If you can give us also your view about the evolution of AI at the edge, which could be an important driver for the growth moving from the data. Thank you.
Thank you, Gianmarco. So answering to the first point about the DIS business, first of all, we want to highlight that the DIS business is still to be integrated because we are waiting for the approval and the clearance from the antitrust authorities, especially in Taiwan and in the U.S. markets. So we still expect it to be closed by the end of the first half. In terms of contribution, what we can tell now, depending on the months of integration, the DIS business is on a recurring basis. We can talk about EUR 100 million per year. This is the current level of revenue they have before the acquisition, EUR 100 million-EUR 120 million. So the contribution will be prorata, depending on the month of the acquisition. In terms of profitability, it's worth to remind that this is an engineering company and designing company, division rather than a company.
So this is not serving to increase profitability, especially versus third parties, but this is part of a major project for us to integrate their business in our solution to vertically integrate their design capabilities. So it's not only about a standalone profitability, but it's also about know-how that we can leverage and also internal development and internal saving. Standalone, it's a company that it's a division that can get you approximately 10%-15% EBITDA, but this is as a standalone division. So the duty and our commitment is to integrate the processes to improve our products rather than just to increase our profitability. Moving to the second part of your question, so about G&A, R&D, and CapEx, G&A are not planning to increase for next year in terms of percentage of revenues.
Instead, it's planning to be decreased because G&A structure will remain the same, but revenue is expected to grow, and then we can talk about that. R&D is still on top of our things. So again, we don't give up on R&D. We plan still to invest approximately the same amount of money to develop our solutions to our customers, so in the region of EUR 15 million-EUR 60 million per year, excluding DIS business. So we talk about only SOC business. Of course, the DIS business, as I mentioned before, is a pure engineering and designing company. So all their expenses are in the line of R&D. And they will be catch-up prorata. In terms of CapEx, again, this is a very important year for us, 2024, because we finally decided to increase our manufacturing capacity. I mentioned that in a couple of calls with investors earlier.
So our investment in CapEx, especially in capacity of production, meaning new plants, especially in Taiwan, where we plan to invest a significant amount of money to increase our opportunity to develop our internal solution of a component. As you mentioned, it's an important component for us, for our business. It means investment for 2024 will be in the region of EUR 100 million, so much higher than what we did in the past. On the third question on AI, I hand over to Stefano Felici. You can give you a couple of points on that.
Yes. Talking about AI, I can confirm that it's a very interesting application for us because, as you know, AI requires very complex and advanced CPUs and GPUs. And as I said also in our presentation, Technoprobe started to invest in this segment years ago, and we developed proprietary technologies that can fit very well this type of application. That said, we see that AI is growing for sure, but now is partially limited by the capacity of advanced packaging, so for this year. So we still see a positive trend, and that will translate for us also in a positive trend as far as our business. But again, the limitation here is on the capacity of advanced packaging. So we expect probably towards the end of the year and next year to have an even steeper ramp. I don't know if this answers your question.
Yes, just a quick follow-up because my question was more how you see the development from AI being used for data center application into edge applications like for smartphone and PC. Do you see this happening maybe this year or next year, or more in the long term?
Actually, of course, the first we see here is more in the data centers, as you just mentioned, but it's coming also gradually in the we go in the mobile space. But as you mentioned, it's something that is going to be more long-term at this moment. First step we see is more in the cloud, in the data center space.
Thank you.
Thank you very much, Mr. Bonacina, for your questions. Our next question today comes from Mr. Giovanni Selvetti. Please, the floor to you.
Hello, everyone. Can you hear me?
Yes, we can indeed.
Thank you. Thank you for taking my question. So the first question is on the acquisition of MW Plasma. I mean, is this communicated, or it's too small? And so if you can, please give us some color about the company, what it is about, its size, and in what way it fits with the rest of the group. The second question is on Harbor. So during the last call, you said that Harbor would have likely contributed roughly EUR 5 million top-line level and EUR 2 million negative at the EBITDA level. So was it confirmed, and how much is there in the Q1 guidance? And if there, are there any actions that you guys are taking to improve the profitability? The third question is on the patent box. I mean, the EBITDA, the net income level, was mainly due to the final approval of the patent box.
So if you can please quantify how much was there, if that's something in the future the company will ask again. The last question was more about the current saturation of the plant. I was wondering, with the current capacity you have, what is the maximum kind of revenues we can talk about? Meaning, I'm trying to have an idea of what would be the future CapEx needed in case AI demand or just simply consumer electronics boom again and how much you need to spend to invest.
Okay. I'll start with your first question. It's about Microwave Plasma. Yeah, this is a very small company, and it's about vapor deposition. And this is just a startup right now, but it is in our and this is, let's say, in the strategy to develop new materials and new processes that are going to be used in some of the parts that we build for the probe card. So I would consider this more like an R&D investment at this moment.
Taking the second part of your question. So about the contribution of Harbor, Giovanni, you're right. So Harbor is still not bringing positive profitability to our group. Harbor is still under restructuring in terms of processes and resources, also including the increase of their capacity that now must be fulfilled by our internal needs. So this is the strategy on the short term. We are still working on that. The contribution for the Q1 is still expected negative. That's why the profitability we have shown in our guidance for Q1 2024 is probably lower than you expected. But this is just a matter of timing as soon as Harbor will be completely utilized in terms of their own capacity to satisfy our internal need and with their own technology that will be applied to our products.
The negative impact can be quantified between EUR 1 million-EUR 2 million per quarter. Now only for Q1. For the Patent Box, we have likely received the confirmation last December. The benefit for the fiscal year 2023 has been approximately EUR 33 million. And this is a benefit in terms of tax credit for which we can benefit in 2024, not to pay further taxes, further current taxes, during the full-year of 2024. It's a matter of cash benefit now. About your latest point, the capacity of our manufacturing processes, with the current setup we have internally, we believe to be able to satisfy a demand up to EUR 150 million, approximately EUR 160 million per quarter in terms of revenue. But this is not enough for us because we expect a significant increase, especially in the end of 2024 and also for the incoming years.
That's why we must be prepared for that ramp-up that we expect in less than 12 months. So our aim is to increase our internal capacity both with automation, so increasing the number of machinery and the equipment for automation, both increasing the plant for the manufacturing of the important, probably the most important internal component of our probe card, which is the MLO, with the plant we are already starting to manufacture, to realize in Taiwan.
Okay. But is this so the investments in Thailand, I mean, out of this EUR 100 million before 2024, how much are we talking about?
This is not for revenue. That will not increase the number of probe cards we can sell. That will increase the performance and the technology of our probe card.
Yeah, yeah. Okay, okay. That's clear. It was a follow-up question, like to have an idea of how much of this EUR 100 million is just related to MLO.
This is entirely related to MLO, our internal production.
Okay.
Thank you, Mr. Selvetti, for your questions. As there are currently no questions queued, we will give a moment to participants to raise their hands. Our next question comes from Ms. Marie Ganneval. Please, the floor to you.
Good morning. Hi. Thank you for taking my question. I just had one, which is more on the puts and takes with regards to the gross margin in Q1. Just wondering if the margin you mentioned, is it just related to Harbor that's going to dilute a bit the margin, or is there anything like inventory reserves you're taking in Q1 as well that's going to have an impact on the margin yet? So just to have the puts and takes on this. Thank you.
Yeah, thank you for the question. So the profitability, the gross margin for Q1 is just affected by, let's say, Harbor. So there are no extraordinary or anything related to inventory for Q1 expected. So our inventory level and related reserve are currently considered fair and correctly recognized already at the end of 2023. So it's worth to remind that we recognize in 2023 a reserve of approximately EUR 13 million for the inventory. And for the moment, we think we are in a good shape. We do not plan in the coming months to recognize a further reserve.
Thank you. But just in terms of probably the impact of Harbor on the margin, what could your gross margin look like if Harbor wasn't in the books then?
As I mentioned before, currently, Harbor do not provide the same level of revenue they had in the past, also because they used it to serve one of our competitors. And now level of revenues are, of course, reduced also by that reason because they are part of Technoprobe now. But the purpose of Harbor, of the acquisition of Harbor, again, like DIS, is not to increase revenues standalone, but this is to control internal technology rather than improving the profitability in the short term. So their technology will allow us to produce better-performing products for us in a more lean way. And this is to increase the capacity of our final product, so our final probe card, rather than just to show a profitability versus third parties. So the business versus third parties will be reduced month after month.
So the most important is to own the technology for our own probe card. So if you want to give you I give you some more flavor on the profitability of Harbor now, in terms of gross profit, it's pretty flat. The negative contribution is recognized at the bottom. So when you go down to G&A and all our fixed costs for the structure, so in terms of a bit that. But gross profit is pretty flat.
Okay. Thank you. Just in terms of the trajectory of how this could look like for FY 2024, do you actually expect baseline gross margin to be slightly lower than what we've seen in previous years because of Harbor, or do you also expect kind of like a recovery as well because your top line is increasing in FY 2024?
We definitely expect an increase in our gross margin as far as the total revenue will increase. So as I mentioned pretty often, so our cost structure will remain more or less the same apart from some efficiency action we are going to take very soon. But overall, the profitability will increase pretty rapidly as far as the revenue will increase in terms of business. And this is the line, the way we see for 2024. Overall, it's a low double-digit increase for the full-year 2024 in terms of revenue compared to prior year.
Okay. Very clear. Thank you very much.
Thank you.
Thank you, Ms. Ganneval, for your questions. Our next question today comes from Mr. Luca Bacoccoli. Please, the floor to you.
Hello.
Hi. Good morning.
So, can you hear me?
Yes, we can indeed.
Okay. Good. So good morning, first of all. The first question is a follow-up on just what you said, Stefano, regarding the double-digit growth. So I was wondering if this is including also DIS acquisition. Then the second question regards the inventory level. Regarding the full-year data, I was wondering why, despite the sharp decline at top-line level, the inventory were basically flat year over year. And then another question on the artificial intelligence. So you mentioned that you expect a growing contribution starting from the second half of this year and even more in 2025.
I was wondering if you can quantify the amount that you expect in 2025 from the artificial intelligence. And then finally, a clarification on the tax credit, so the cashback of EUR 33 million. Should we expect a reported tax rate in 2024 aligned to the level that we have seen in 2023? Thank you.
Thank you. So about the first question on the revenue level, the increase I referred to was only for our core business, so the current core business of SOC. DIS was not included in this estimate because now it is not still part of the group. So potentially, we just show the business of MEMS and vertical MEMS and probe cards. So this is the year-on-year increase. I don't remember the second question was, sorry, about the inventory level. So the inventory level, when I said flat, I meant I was referring to the reserve. So the reserve now represents approximately 20% of the gross value of the inventory. And we don't have currently plans to increase or decrease this reserve. We believe we have to be in a comfortable position in terms of ratio between gross amount and reserve.
In terms of tax rate for 2024, the Patent Box will last also for 2024. That is the fifth year of the allowance, so starting from 2020 to 2024 included. So 2024 will benefit again of Patent Box and will allow us to reduce the tax rate for the year from the regular 27%-ish to approximately 23%-22% effective tax rate. So this is another year of benefit in terms of current tax. The difference is that from the cash perspective, we do not expect to have any cash out because of the tax credit that we have now recognized and related to 2020, 2023 years, fiscal years. On the AI question, I hand over to Stefano again.
Yes. So on the AI, I think we expect the range of 15% for this year to consider our overall business and growing probably over 20% in the following years and more. Again, it's not depending on us. We are ready as far as capacity, but it's more depending on the ability of our main customers to ramp up with advanced nodes like the 3 nm and advanced packaging. But of course, start to be a good portion of our business. It would be a significant portion of our business in the future.
Mr. Baccoccoli, you are now on mute. If you'd like to add a follow-up question, please unmute your line.
Yes. Just a clarification on the inventory level, Stefano. When I said flat, I was referring to the fact that the amount was around EUR 119 million at year-end 2023, and it was EUR 120 million at year-end of 2022. And so why the inventory level did not fall as much off the top line? That's my question.
Okay. So let me better explain. So the inventory level for us, it's essential to fulfill deliveries to our customers. So it's a matter of risk management. So for us, it's more and more important to have the right level of inventory of semi-finished products or raw materials ready to be transformed into our final products as soon as the orders come into our company from customers. So as you know, the orders come overnight, and you have to deliver that in a very short period, so up to no longer than two to three months. So you need your raw materials and semi-finished product to deliver the final probe card. So the risk not to serve, not to be able to serve your customer is higher than the risk to have an excess of inventory.
The risk of this excess of inventory is now mitigated with the reserve we have recognized during 2022 and 2023 as well. So that's why you have seen an increasing level of inventory compared to prior year despite the decrease in revenue. So it's just a matter of risk management.
Okay. Understood. Thank you.
Thank you.
Thank you, Mr. Bacoccoli, for your questions. Our next question today comes from the chat box. It's from Mr. Arturo Lòpez Spajani . Good morning. Two questions from my side. In light of your comments today, it is correct to assume 2024 as a transition year in light of the dilution from the acquired business impact imagines? The second question, would you remind us your CapEx target for the full-year 2024 and expected estimated free cash flow generation? Many thanks in advance.
So about the first question, that's partially correct. So 2024 will be a transition year for the dilution of profitability for Harbor for sure and DIS depending on the date of the acquisition. Of course, the longer is the date of the acquisition of the integration of DIS, the longer will be the time needed to integrate and reduce the dilution of profitability. We expect for DIS, from the date of acquisition, at least 12-18 months of integration time to recover the lower profitability they show compared to our core business. So the year of transition for DIS will be likely to include also 2025. And the other question was about, sorry, can you repeat the other question, Flora?
Yes, of course. Would you remind us, yeah, your CapEx target for the full-year 2024 and expected estimated free cash flow generation?
For the CapEx, as I mentioned before, we expect to have investments for approximately EUR 100 million worldwide, so including renewal of equipment together with the new plant manufacturing, especially in Taiwan. Free cash flow will be in line with 2023 cash generation. This is, of course, driven by the revenue increase. As much as the revenue will increase, the free cash flow will increase consistently. The only difference will be the cash generated by new revenues together with the lower cash out compared to 2022 due to the tax benefit we got from the Patent Box. But from the operation, we expect the same level of free cash flow.
Thank you very much. Our next question is a follow-up from Mr. Gianmarco Bonacina. Please, the floor to you.
Yes. Just a quick follow-up on the revenues. Basically, you indicated the low double-digit organic growth for your wafer testing business plus the inorganic contribution of DIS. What about sales from final testing? Will you generate in 2024 sales from final testing products excluding DIS, or this will be mainly, let's say, final testing related to the DIS consolidation? Thank you.
Yeah, that is the second you said. So we expect that it will be the major contribution for final test will come from DIS for this year. And of course, once the integration will be done, the plan also is, of course, to leverage on various synergies on technologies and introduce more advanced technologies also in that area. But as far as revenue, we expect that the contribution will be coming from DIS for this year.
Thank you.
Thank you very much, Mr. Bonacina. As currently, there are no questions queued, I will hand back to the management team for any final comments. Thank you very much.
I'd like to thank everyone for attending this call. We'll talk again in three months. Thank you.
Thank you very much. The presentation will now come to a close. Thank you.