Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Melexis Hynq2 2018 Results Call. I would like to hand the call over to your speakers today from Flast jumbar and Karen Van Greenson. Please go ahead.
Thank you. The dear audience, we appreciate your attendance to the Melexis earnings conference call for the second quarter and thus also first half year twenty eighteen. For starters, let me give you a brief business perspective update. My name is Francois Chondard. And then our CFO, Karen Myslingsmann, will take over for the financial highlights.
So first some highlights from the business and market side. Sales for the second quarter of 2018 were 100 and 41.8000000. Sales for the first half year of twenty eighteen thus came out at 1,000,000, and that's an increase of 12% compared to the first half of 2017. Melexis performance is well in line with our expectations. Excluding strong U.
S. Dollar currency headwinds, Nellix's first half year sales growth would have been 18%. This solid growth is related to taking all the boxes on electrification, assisted drive and customization of the car. Nalexis thrives, thanks to steadily increasing semiconductor content in cars more so than related to the number of cars produced in the world. The Melexis market fundamentals are sound, and today's customer sentiment continues to be positive.
Geographical spread is virtually the same in half year 1 'eighteen as it was in half year 1 of the previous year, with just 1% less in the Americas to the benefit of Asia Pacific. The portion of Standard Product sales has meanwhile grown to 65 percent of total sales, in line with our long term strategic intent. Sales growth in adjacent markets moves at virtually the same pace as automotive. On the same note, I'd like to touch on the Silicon Valley trade show that Melexis attended again just a month ago. Census Expo And Conference.
This is the largest gathering of engineers and engineers in and sensing related technologies. The 2018 edition attracted 7000 plus attendees, and about 350 exhibitors. The event was held at the McHenry Convention Center in San Jose, California, just down the street from Melexis newly opened Silicon Valley Sales Support Office. Sensors Expo provides Melexis with an excellent stage to brand our capabilities and product portfolio, both for Automotive and adjacent markets. Especially our offering for electric vehicles was well received.
We showcased our embedded lighting products, used the opportunity to put our 3rd generation Triaxis in the spotlights again. And we had our product marketing manager as one of the speakers up a speaker breakout session on sensor fusion. His talk about our time of flight family drove an amazing subsequent traffic to our growth. It was a great place to connect with the local engineers of both our existing Now looking at our half year one growth drivers, they are as usual, broadly based. 3 highlights are worth mentioning this time.
1st, in embedded lighting, we continue to benefit from existing ambient lighting programs ramping up as well as new programs which form a cornerstone of our magnetic product sensor family. They are being used in many applications, such as steering systems, gear shifters, pedals, transmissions, high demand for electric power steering and advanced power train evolution towards assisted and autonomous vehicles are key drivers for further growth. Last but not least is our temperature sensors product line, which is one of the speaking examples of technology that can serve both automotive and adjacent market applications. Our temperature sensor line experienced a growing demand from its distribution customer base. These distributors serve a variety of applications in the areas of consumer, white goods and small appliances, mainly targeted aviation markets.
A second growth pillar for the product line is its automotive thermocouple interfaces. These are used in the powertrain and address the growing need for more stringent engine and exhaust thermal management and control. Going forward, a healthy order book gives us confidence to guide for full year 2018 sales growth of 13 sensor and driver products. We, therefore, invest into enhancing our test capacity with building extensions in Sofia and those smaller also in EPRA, and with our newest wafer test site in Cobbe, Epson, south of Paris. And into expanding our R and D capabilities gradually everywhere, also by setting up new design centers, by the 1 in Dusseldorf, Germany, which we publicised just earlier this month to be fully operational by yearend.
The future is an exciting place in date. Karen Please, can you now go ahead with the financial update?
Sales for the 2nd quarter came out at 1,000,000, as already mentioned, personal plans, an increase of 10 percent. The gross margin on the other hand was 1,000,000 or 46.4 percent of sales, an increase of 11% compared to the same courses of the last year, and an increase of 4% compared to the previous quarters. R and D expenses were 13.5 percent of sales. G and A was at 5.3%. Of sales and selling was at 2.7 percent at full.
The operating results were 1,000,000, or 25% of sales, an increase of 7% compared to the same quarter of last year and an increase of 3% compared to the previous quarter. The net result was 1,000,000 or per share. A decrease of 9% compared to 1,000,000 or per share. In the second quarter of 2017, and a decrease of 2% compared to the previous quarters. If you look at the first half year, We grew 12% or EUR 281,100,000 in sales.
The gross margin was 128,900,000 and the increase of 11% compared to the same period last year. Or 46.4 percent of total sales. The operating result was almost 1,000,000 compared to 1,000,000 in the same half year of 2017, an increase of 8%. Net income came out at almost 1,000,000 or 1.41 per share. An increase of 1% compared to or per share in the first half year of 2017.
The board, again, decided on a half on, on an interim dividend. Of EUR 1.3 per share. So the shares will start trading at on October 23. The record date is October 24, and the payment date will be October 25. We are now open for questions and answer session.
So please go ahead. Thank
So we have 3 participants. With the first question comes from the line of Francois Bouvignies.
Hello. Thank you for taking my questions. The first one I had, was on the full year guidance. So, at the midpoint, it remains the same, but you changed the exchange rates. So if I may estimate a correct it's a 2% impact on the currency.
So my question is what changed for changing the constant currency full year guide. What is the main driver for this?
Okay. Yes, thank you, Francois. It's, I would say normal that we reduce the spread in the mid year. Because at the beginning of the year, of course, the currency mix and the forecast as a whole, are always much more uncertain. There's always some corrections here and there during the year, but I think what is key to It is no structural change going forward.
The market is positive. As I said, Melexis products tick all the boxes on the market trends. We keep gaining market share, and we have a healthy order book. It's just that, yeah, we, we always try to be as realistic as possible. Using the data that are available to us at the moment.
We make the guidance, and that's what we've done also today.
Okay. That's clear. Just to clarify one point. So I understand you know about the guidance, but at constant currency, because you you took 1 17, it's it's lower by 2 percentage points. So I just wanted to have is there any any specific driver, like, kind of production or a delay of contracts, just to know what is the delta coming from?
No. Nothing in particular. I think it's the usual corrections, over the years.
Okay. Okay. Thank you. And the second one I had is, again, I asked you last quarter already, but the on your inventory So if we look at this quarter, it came up very high compared to your historic If I remember correctly in Q1, you said you were comfortable with the level you had in Q1, but it keeps increasing significantly. So can you help us understand what is really driving these increased inventories and maybe yet to understand what is inside your inventories?
Well, I can tell you that we still feel comfortable with the inventory as it stands right now. It is fully in line with our guidance for further growth in the second half of twenty eighteen and, what is in important here is that we want to secure the supply to our customers. So in, as as you know and I to anyone that in today's strained capacity situation, it is, in fact, strategic to build inventory. We don't expect it to move strongly again in the second half. But, I think nothing specific there.
Nothing that at least I worry about.
What I'm trying to understand is, isn't the first time that Medicis has a 15%, 20% growth going forward? And you never had such level of inventory despite this growth. So why why this time is different? Why do you build so much when the pipeline is different than previous years?
Because the situation on the market is different than it has been for a long time. The tight capacity situation is one of the reasons.
Even if like so we should expect maybe like, a very actually in 2019, then are you building up for 2019?
Well, that's a good try, Francois, but we only give our guidance for 2019 in February, so that's the full year results.
Okay. So going forward, this inventory level, should we expect to stay at the same level or going up, down further?
We expect it more or less to stay around these levels
that we have today. We don't expect it to grow, much more certainly not 1st to sales
over the next months to come.
Okay. Thank you. And the last one for me, it's you're talking the release about autonomous driving as a driver for your magnetic sensors Can you give us some example of application for ADAS applications just to have some example of what is driving just to try to understand some examples.
Yeah. Well, I have multiple, examples, but, if I stick to the, because you could talk about the more visible things like, 3 d cameras and, and, and so on. But, people always forget that there is a lot hidden in the car. And the when you have an autonomous vehicle, then you need the car to understand what is happening. But also the car to react and react in a very controlled fashion.
So you have all these closed loop control systems that need to understand where everything is in the car, what the position is or what the status is of pump and of flaps and motors and which means that you need the car to sense also its internal. So not only to be conscious about what is going on externally and be able to react accordingly, but also to understand how, moves are being done internally. So when a car needs to break, by itself, then a whole bunch of systems need to respond in the right manner. But when you then restart the, the car, then the systems should know, ah, that's where I was 5 seconds ago, this is where I have to be, now in the next milliseconds. So all these closed loop systems need a lot of sensors and a lot of drivers to make sure that, the functioning is impeccable.
And that is something that many people forget that, this is needed because it's not as visible as, for example, a camera would be. I hope that, answers your question.
The next question comes from the line of Bernardan Menin. Please ask your question.
Hi, good evening. Just a couple of questions for me. One is on your ASIC business itself. Yeah, it's quite a large part of your business, but when I look at the trends over the last quarter or year on year, this business is actually not growing. It actually declined a little bit, both sequentially and year on year.
Whereas, obviously, the rest of your business is growing very fast. I'm just wondering what is the reason of for that? And more importantly, what is the outlook for that ASIC business? Is it likely to be sort of a drag on your growth rates going forward? Are we going through a temporary phase, which should correct itself?
And and we should Any comment there would be helpful. Thanks.
Okay. Well, I'm not sure if it, if it does not grow at all. I do believe that it still is growing, but our long term intent is indeed that the ASSPs are taking much more share. It's also it was a it was a target also to make that grow. And what you see on the market is that people or customers are less and less interested, in building their own ASICs because it's hugely expensive.
And, I think that Alexis can, cover the needs of the market and the needs of customers with our ACPs and so with our standard products. And also with customized ASSPs. So we have a bit the best of both worlds in the sense that we have the improving technology which we adapt, to the needs of customers, not always, because there are standard products that are really standard and are not changed at all. But some of the customer needs are a bit different than others, and we can adapt through, for example, firmware or through one mask set change, or other types like package types, etcetera, or test versions. So in that sense, yeah, it's you have to we have to make a choice.
Those customized ASSPs, are they, to be counted under the ASICS or under the ASSPs? We count them under ASSPs because in fact, they are 95 or more percent the same. And, yeah, just a little tweak is required towards the customer requirements. So I would say that it's not, it's a normal, it's a normal evolution of our business. And it's it's one that we welcome.
So does that mean that, you know, within those numbers, there is a trend towards where you are replacing at your ASIC customer and ASSP part. Over the last 12 months or so, which is also contributing to what you're saying.
Yeah. That happens. Yes.
Okay. Just moving on to the broader market, there's been quite a few concerns on tariffs and trade wars and things like that. Some of your customers have talked about seeing an effect on their sales, your OEM customers. Have talked about that. I was just wondering what exactly you have seen in your order book have you seen any of your customers having a slowdown?
Is that being compensated by others, with which is ensuring that overall there's not too much of an impact, or have you seen any kind of an overall slightly slower momentum in the last few weeks?
Well, no, we have not. We have not seen an impact on this in our order book at all.
Okay. But then how do you how do you sort of weigh that against comments from the likes of, say, Mercedes or Daimler or Volkswagen that they either cutting production or they're seeing an impact, etcetera, what do you think is happening in that mismatch between what some of them are saying versus what semiconductor companies like yourselves are seeing in terms of orders?
Well, I think what is important to, to note is that, Lexus is much more driven by the semiconductor content and by new programs coming on board. Than by a number of vehicles sold. So I'm not saying that there is no impact at all because, of course, if the number of cars produced in the world, is reducing, then it will impact somehow our business. But you don't see that necessarily as a pure impact because it is compensated by new programs coming on board. That either we win from the competition or our new programs that come into cars that were not there before.
New applications that you need, etcetera. So it's a mixed it's a mix between those two.
Understood. And last question is just on the temperature sensors going into the distribution channel. Is that, is that something which you have been pushing harder in terms of expanding your presence in the distribution channel and also to non automotive customers? Or is it something that just happened to take place during the quarter where you saw stronger demand for the distribution channel for those products going into these non automotive products?
Well, it is, as you know, a strategic intent for is to do more in the adjacent markets. Years ago, we were losing percentage wise on the adjacent markets. Since now 2 or 3 years, we are moving or we are growing the adjacent market portion at the same pace, more or less, as the automotive, which is a first sign that it's that the strategic intent actions that we have been taking are getting results. And yes, also the the or we also made a move towards, under towards supporting the distribution sales. We've added a new distributor recently.
We've done some changes in the distribution in order yes, product lines like the temperature sensing line or the latches and switches or the fan drivers. That are more suitable, let's say, for a smaller volume sales and for sales through distribution. Yes, we have, made some efforts to make that happen. So we see indeed some, some first results of that, and that's very good. Because if you do actions, you expect results, and that's what we're seeing today.
But it's not only temperature sensing. It's, it's several ones, but as temperature sensors, sorry, as this product line had, good results in the first half of this year. And we noted that one of the reasons was indeed that sales through distribution is picking up.
Your next question comes from the line of Guy Sipps. Please ask your question.
Yes, I have one additional question. Did you see any impact of changes in buying behavior of some of your OEMs relate to new legislation like new realized driving test.
Well, I would say yes I think the customers are more open. Well, we don't sell directly to the OEMs, as you know. We do sell to, Tier 1s. We do have connect contacts with, with OEMs, of course, and more and more something we do much more to understand firsthand what the plans in the industry are. But indeed, the real driving tests and the new emission legislation also the TPMS legislation in China, for example, does move as it has over the over the years.
I mean, this is not new. Legislation is driving more semiconductor content. So I guess I would say we do see that. Not that it's, it's huge, but yes, legislation has always driven more business in semiconductors.
But it's not that it's triggering some postponements recently.
Post tournaments on what exactly what do you mean?
On order intake?
Not really, not that I know of, no, not today at least.
So it's also it has also no relationship with a question of one of my other analysts related to the inventory buildup is no relationship between this and the investors?
No. No. No. No. No.
No. There is no, no direct relationship to that. As I said, The inventory build is a build that we do for strategic reasons. We want to make sure that our customers are secure, as far as their supply is concerned, you've had in the past, let's say, 1 years to 1.5 years. In, we were in some lines in an allocation that makes customers extremely nervous And then you need to, yeah, do a little more to gain back their full confidence than what is usually needed.
But we are building also, to secure the growth in the next couple of months. And, yeah, capacity extensions also mean that you put in some buffers in case your transfer plans are a bit delayed for one or the other reasons, you want to have a good buffer stock. So that's also what I mean with it's strategic to put in place the right inventories. But of course, these are inventories that are, yeah, we don't just build inventory of everything. We make a good selection of what exactly we want to have as inventory.
So it's not across the board. It's very selected products. I hope that answers your question.
What kind of products that are or is that
Sorry, come again?
Can you give us some insight? What kind of products that you are building up inventory or is that?
That's at least there are products where we see a long term or a longevity So, no risk of obsolescence and high risk of, of getting maybe stuck in either a transfer plan delay or a potential raw materials or capacity issue. So we do contingency planning and that contingency planning decisions that sometimes say, okay, let's build some more inventory of that and then we're secure for the supply. I would say those are the criteria that we use in order to build inventory or not or build more inventory than normal or not. I hope that's clearer now. Yeah.
Okay.
Perfect. Thank you.
Good. Thank you.
Your next question comes from the line of Jeff Osborne. Please ask your question.
Good evening. A couple of questions on my end. Maybe just on the inventory issue again, sorry to keep harping on that one, but other than capacitors and rectifiers, which is an industry shortage of, are there any other key components? My understanding is you don't use any silicon carbide, but can you just talk about specifically for what applications you're seeing? The component, shortages.
And then are you having to go out to 2020 to provide firm visibility, to your suppliers for those components?
Well, it's not only about supply of materials. It's also about capacity constraints. The capacitors that is indeed well known and the whole industry is struggling with that. But there is also other materials It could be what we've seen is sometimes, and it's very diverse. So it's not just one big thing.
It's very diverse. Sometimes we come into trouble with lead trains. Sometimes we come into trouble with mold compounds. Sometimes it's about, well, we need some special silicon wafer material, or we have upsurges that we don't know if the the ramp up will happen exactly in that manner. And then we want to secure at least that we have sufficient capacity plus material.
I mean, it's so diverse. It gives us times a lot of headaches, but, it's a bit across the board in the industry. You mentioned silicon carbide, and indeed, we are not into silicon carbide. But the same is true for silicon wafers.
Understand. Could you just remind us on the the lead time, you know, in general, the visibility that your order book, gives you, is that 2 to 3 months or how firm are the orders with all the changes going on in the automotive industry, what type of line of sight to revenue growth do you have?
That can also be very diverse, but I would say 2, 3, 4 months is what we usually have. Now on the on the previous question you had on the inventory, I must say the worst is over on it there will be some continuation of capacity, etcetera. But because we have done a lot of work, proactive work, on making sure that we have the necessary capacity either reserved or build up no matter where it is in the supply chain. It could have been on our end as well. But because of all these actions, yes, the worst is, I would say, is over.
That makes sense. 2 other quick ones here. Do you have a sense of a perspective of, you know, as you ship to a Sensata or one of your other tier 1 partners, Continental, etcetera. And then that then is shipped to a car. What that lag time is, between the shipment from your fab to the actual production of the vehicle, just given all the changes on emissions assessing in Europe, the new energy vehicle credits in China being reduced, that's been an area of concern.
Yes, that largely depends also on whether we're Tier 1 sorry, whether we're Tier 2 or 3. And whether our customer is using subcontractors or not, until it I would say on average, it's probably between 4 6 months. But don't pin me down on that because it's also extremely diverse.
Makes sense. And the last one I had
is just with the highlighting of the distribution channel, for the non automotive applications. Is it correct to think about that as potentially lower gross margin, but potentially less OpEx intensity. So the EBITDA margins are potentially better than your corporate average, just any puts and takes on the margin for both lines would be helpful to understand.
Well, because distribution is usually lower in volume, the prices are higher. So the gross profit margin is a bit higher. Is there
a higher OpEx intensity for staff to do that as well or no?
No, not really. Not really because it's the same knowledge, that we need or the same competencies we need for serving direct business as it is for distribution. For distribution, you also need distribution managers. And for serving customers, you need account managers. And for both, you need application.
Engineers that either train the distribution application engineers or that dig deeper into the customer application. So It's a bit, it's a bit similar, I would say. There's no big difference between one or the other. The biggest difference is in the number of customers that you can reach through distribution. So much more diverse customer base with lower volumes per customer.
Makes sense. I appreciate all the detail. Thank you.
No problem.
Our last question that just came, sorry.
Hi. Good afternoon, and I have 2. So the first one, you over the first half, you reported revenue growth of 12% and 18% constant currency basis, the automotive sensor market is not growing as fast. And you mentioned that you're gaining market share. So could you please elaborate on that comment and maybe share with us who is the market share to make or or how is the competitive landscape look now?
And that's the first one. And the second one would also would be if you could comment on the performance of current sensors. Thank you.
Competitive landscape has not really changed a lot. So it's pretty much the same as it was. And also the way we do business and the way we gain market share is, is is gradual, by making sure that we make the right products for our markets that we come out with, with the right features on our new products And, the other thing is if you have a good, if you are incumbent in a customer, then the customer usually tries to maximize also their investments in your product and they grow organically over time, they grow organically, whatever they buy from you. So they put it in more and more platforms. And our products, I mentioned it before, where you have these best of both worlds where you customize, standard product technology.
That also helps because sometimes they have a different, slightly different application They want to use your product, but they need a slight tweak for 1 or the other OEM, and that's been very easy to do, because it not always easy to do within ASIC, but it's easy to do within, within ASSP. So that's one. So competitive landscape, not not really changed as such. And on current sensors, what is exactly your question?
The product family has been doing in the first half. And I mean, sometimes the other you know, the quarters you've come in the performance and, you know, just just to know. I know I I know they represent a very tiny part of the portfolio, but I just want to get a sense of how fast are the coin?
Yes. Well, we don't usually inform on the percentage growth per product line, what we usually do is to give a view on what has what stood out during the quarter or during the half year in this case for so the ones that are, let's say, performing the best That does not mean that current centers is not growing. In fact, all of our products are growing over time. But we do not mention the precise percentage growth. We've never done that.
And we don't intend to start doing that neither.
The next question comes from the line of Basil Tas. Please ask your question.
Yes, hi. Thank you for taking my question. Most of them were already answered, but there's one 2 left. The one would be What is your current visibility for the remainder of the year with the guidance for the full year on the hand? I mean, do you have this usual 12 to 15 weeks?
Or can you already see into the first quarter of 2019 to have a feeling already how this could shape up. And the second one would be, we get a little bit color around your ADAS, autonomous driving positioning But I was wondering if you could give a color around your EV clean car position products there? Are you engaged in this, topics like main inverter and the onboard charger or is it rather around this EV part? So what it's your positioning there would be really very helpful. Thank you.
Okay. On the visibility for the remainder of the years, this is what we've, mentioned in the press release. So I have a little to add to that. And indeed, we have the usual, like we said before, 2, 3, 4 months of visibility. So, I do not comment on Q1 or we do not comment on Q1 neither.
Yeah. Sorry if I may interrupt. I know it's really not a guidance or but if you see like, you have the usual order pattern, but also the longer term project so to say, if you would, I mean, can you say from this longer projects that visibility has not really deteriorated looking into the first half of the year despite all those macro noise trade tariffs, lowering China, auto volumes, maybe. Would you say from the bigger orders or larger orders projects that everything is still on track?
Yeah. I would say so. In fact, if I I'm with customers quite a bit and, there's a lot of work to do There's a lot of change going on in the industry and customers are really busy with all these with all these trends, electrification, assisted trial, work to do, and I don't see today, a change. That's why also we said in the, in the, comments that we see positive customer sentiments. So that's if that is what you were looking for, yes, no, we don't see any change.
And Everybody is, is hard at work, to manage all these, yeah, important changes that are happening in the industry towards more electrified vehicles and more, yeah, than the road towards autonomous drive.
I
hope that answers your question then, your first question. Yes. On the second one, so you were asking how we are on the electric vehicles. We are doing very well on that, because in general, if you would go to for example, current sensors, which the previous person has asked for. Then, the trend of the electrification is, of course, very benign for that product line And specifically in, in automotive, we are in the inverter, for traction motor control, and we have significant share there, also on the onboard charger, but, definitely also in the inverter.
Clean cars needs a lot of sensors and a lot of drivers. And what you what you see is that with electric vehicles, or hybrid vehicles, whatever. The hybrid vehicle, of course, is the best of both worlds because it needs a much cleaner usually than gasoline motor. And in the future, it will be more gasoline than diesel. Motor, which means more sensors and more drivers to be used in that.
And as far as the electric vehicle is concerned, they also need to become much more efficient And that they also require a much higher sense and drive content, than, than today. In many cases, the, yeah, if you look at, range fear at the fact that the way of dealing with energy and with consumption of energy in an electric vehicle is looked at. Sometimes, what we see is that, customers rethink the system completely not only our direct customers, but also the OEM. And they are talking to us about this. The mitigation trend will need much more smart valves, for example, for thermal management, but also more dynamic also more aerodynamic, again, all of that to improve range performance.
So we are extremely well positioned in that area. And for the Assisted Drive and Autonomous Drive, I think I have answered that question already, previously.
Okay. If I may, just a quick follow-up. If you take the midpoint of your or let's say the 13% to 14% growth for this year. How much of this growth is really coming from your traditional business and how much is of this growth is driven by the new topics, autonomous driving and a clean car topic. Can you give a direction for that and how could that shape up midterm?
It's very hard to tell. I'm sorry. This is really, really hard to tell.
Okay. No problem.
No problem. I'm sorry for that, but if that's
No, no, it's it's I guess it's tough. What is it's tough? What is ADAS and autonomous driving, which Yeah. No, I'm fine. I'm fine with that.
Thank you very much.
Okay. Operator, do we have further questions?
No, we haven't got no more questions.
Okay. Then, dear audience, thank you for your interest. And, to the point questions, looking forward to welcoming you at our next earnings conference call, which is on October 24th, and, or let's say at our Analyst Day on December 5th later this year. Have a lovely
you.