Ladies and gentlemen, good afternoon, and thank you for standing by. Welcome to Alexis Quarter 12018 Results Call. At this time all participants are in a listen only mode. Must advise you that this conference is being recorded today, 20th April 2018. I would now like to hand the conference over to your speaker today, Francois Shamba.
Please go ahead.
Thank you, operator. Dear audience, let us welcome you to our 1st earnings conference of the year. Your speakers are, as usual, Karen Vonkiddingsen, CFO and myself, Francois Shonda. As for the market and financial highlights from our side, we will be happy to answer any questions you may have. So let's kick it off.
Some highlights from the business and market side. Sales for the first quarter of 2018 were 1,000,000 an increase of 13% compared to the same quarter of the previous year and in line with expectations. The euro dollar exchange rate evolution had a negative impact of 7% compared to the same quarter of last year. And this is a very high percentage by comparison to the past. Excluding this negative currency impact sales growth year on year spread is exactly the same The portion of standard product sales have meanwhile grown to 64% of total sales in line with our long term strategic intent.
Looking at our quarter 1 growth drivers, we are satisfied that it is again broadly based So let me give you 5 peaking examples. Our embedded lighting products are sprinting ahead. Ambient lighting is adopted into more and more cars, and Alexis is an outspoken market leader in this field. 2, pressure sensors are also doing extremely well. Last December, we launched the MLX 90818, which is representative for what Melexis is mastering.
Namely making a significant step forward in automotive pressure measurement by offering the market highest accuracy and smallest size pressure sensor for harsh automotive applications. This device will make a significant contribution developing highly efficient and cleaner vehicles thereby reducing pollution and preserving the environment. Thirdly, it was also a good quarter for our temperature sensors, both the smart integrated sensor type and also the sensor interface type. So very high temperatures. Family.
I believe it's fair to say that Melexis Meanwhile has the largest and most innovative portfolio in the market which is why these products rise up in sales for many subsequent quarters now. In automotive, growth is driven by key customers that are moving the needle for several applications linked to safety systems and powertrain applications. These customers find our products just optimal for Automotive Safety And Energy Consumption Services. Applications include seat belt buckles, window lift and all types of motor communication. At the same time, consumer and industrial customers like our value optimized product and examples are usage in key locks, medical beds and all types of fuel motors.
Both Automotive and adjacent markets equally appreciate the road map we present with continuous innovation ahead. Then last but not least, Our Magnetic position sensors continue to grow as well. We launched in March a new generation of our TriA again, reaffirming our number one position in this field. Maine applications continue to be powertrain and in the new electrified powertrain, both hybrid and fuel electric feeder. Furthermore, you'll find these products in steering, pedals, shifter applications, etcetera.
The higher demands in robustness, safe integration, electrification in general and added features are driving many of the integration activities in this area. Driving electric cars and consumer demand for more comfort and ease of use continue to grow. Our sales outlook for the second quarter is around the same level as the first quarter. For the full year 2018, Our guidance of 12% to 15% sales growth is reconfirmed. The sales outlook reflects what we see of the year,
Thank you, Francoise. Good afternoon, ladies and gentlemen. A little bit, explanation on the financials. So the sales was already mentioned, 13% growth versus, the quarter a year ago with a high impact of dollars of around 7%. If you look at the gross part, the gross result was 6 1,000,000 or 45.3 percent of sales, an increase of 11% compared to the same core of last year and an increase of 3% compared to the previous quarter.
R and D expenses were around 13.3% of sales, G And A was at 4.9% of sales, and selling was at 2.4 percent of sales. The operating results was 1,000,000 or 24.6 percent of sales, an increase of 9 compared to the same quarter of last year and a decrease of 5% compared to the previous quarter. The net results 1000000 or per share in the first quarter of 2017 and an increase of 8 compared to the previous quarters. I would now actually like to open the question and answer session.
You. And you have several questions on the line. The first question comes from the line of Francois Bouvignier. Please ask your question.
Thank you for taking my questions. The first one I had is on your seasonality and your Q2 guidance. And so if we if we see that we have a quarter on quarter flat revenue growth in Q2 versus Q1, if we compare it to the Easter, it was more around plus 6 percent at constant currency, in my math in the last 5 years, is there any particular reason that could explain that this this difference versus your historic seasonal quarter on quarter growth in Q2 versus Q1?
Okay. Let me take that question for you. So growth as Melexis is experiencing, does not really go up in a straight line. When we look at our order coverage, we see indeed the 2nd quarter to be in line with the 1st quarter. But, it still represents, if, of course, this materializes, let's be clear This would still represent a year on year growth of around 8%.
And that excludes the negative currency effects, which will still be significant. Yes, we saw similar patterns in earlier years. And even the last example was last year, Q2 to Q3. And yeah, what causes this, main effects are probably short term patterns in that sorry, in that short term pattern we see are probably supply chain effect. You always have that and it's hard to tell.
And is there any chance there was inventory build in Q1?
We can never, be sure of that. Of course, it's, you should also make a clear view that the negative impact of the lower dollars year than in the second half of this year because the spread is really big. I cannot even remember if we've had such a spread before in the exchange rate year over year.
That's why, I mean, my question, because you had a significant negative impact. So at constant currency, it's a very strong growth in Q1. And that's why I was wondering maybe it's possible that inventory build in the supply chain, and that's why your Q2 is a bit softer than your seasonal pattern, let's say.
Well, if you look at the general market, if you look at the inventories of the car manufacturers of the Tier 1s of our inventory, the inventory of distribution, there is not a big buildup, as such. It's pretty much, okay. And, yeah, you have those effects mean, we cannot force our customers to order more. And what we try to do in giving our guidance to the market is always to be as close to what we believe will be the reality at the end of the next quarter as we and the end of the year as we possibly can. So what we see is Q2 is a bit the same.
Q3, we and the rest of the year, we expect sequential growth to pick up again. It's still early in the years. But the guidance range today. I don't know if I mentioned already, but the customer sentiment continues to be positive.
Okay. That's very clear. Thank you. And just a quick one on add is on your own inventory, given that you see the inventory in the supply chain positive. So in Q4, it was high.
I mean, compared to your historic again, and you mentioned that had a strong growth pipeline and that I totally understand and you saw it we saw it in Q1. But it's still high in Q2. And I was just wondering, should we expect this to go down or to continue at this kind of level going forward?
I think it's a pretty good level, going forward. And it also signals it also signals that we set up for growth.
Yes, yes, of course. So we shouldn't expect a massive decline of your inventory days then.
A massive decline? We I don't think so. I think it's at a good level, there will always be some fluctuations, sir.
Okay. That's clear. The other one added on your R and D investments in Q1. How should we think about mean, the full year, if I remember correctly, last quarter, you said that OpEx and investment will be in line with growth. R and D, you some new fabs under construction and to build, how should we think about the rest of the year about R&D as percentage maybe for the full year?
So R and D, yes, we are heavily investing in R&D. We see it already Q1. It will continue throughout the year. Obviously, sales, we also expect to grow But it might be that, as a percentage of sales, also R and D will increase over the next quarter,
though.
Okay, okay. That's clear. And one last question for me because I want to just refer to my peers. The other non autonomous growth, how should we think, I mean, you had a very strong year in 2017 and maybe it's a very tough comps, but it seems to me that you had a deceleration in this part of the business. So I just was just wondering how should we think about this indeed going forward?
Well, Q1 is always a little bit, less unless there are new products coming on board, which was not the case, for Q1 this year. But you always have the Chinese New Year, which, is creating a little dip, as far as the long term is going forward, adjacent markets continue to be, in our focus. I think it's, again, you have the supply chain effects and, effects of seasonality effects like Chinese New Year does influence. But on the longer term, it is, of course, still our intention that it will, lift off at some point in time, but the automotive is growing, so well that it's hard for the adjacent to keep up, but they are more or less keeping up now with the same growth over the last maybe 1.5 years to 2 years, more or less. Whereas previously, the adjacent market percentage, was in decline.
We have more or less stabilize it now over the last 2 years. And the yes, it's still the intention that at some point in time, it takes a better turn. But again, it's because Automotive is also, it's also because the automotive is doing so well. Thank you. You too.
Thank you for your question. The next question comes from the line of Guy Sipps from KBC Securities. Please ask your question.
Yes, first of all, personal comment to Francoise. Congratulations, which are for women entrepreneurs. And secondly, I have two questions. 1 is related a little bit to the previous speaker. At this, the to the you're very optimistic on the second half of this year, is it already taking into account the expansions that you are doing in Sofia, Bulgaria and the 1 in France, or will we see the results of that later this year.
And the second is, this is the 2nd quarter in a row where if we compare the quarter on course or the year on year increase of the non automotive that there, the growth is lower than in the automotive area. Is that is there reasons for that or can we expect that also in non automotive that that can pick up and contribute to the growth going forward? Thank you.
Okay. Well, 1st of all, Keith, thank you very much for the congratulations. I considered as a, a real team success it's not a personal success because 3 of the 4 criteria were related to Melexis. So I'm very proud of being the CEO of a company that, is successful. And of course, we will all work together to continue to make it successful.
But thank you for your nice words. So on your first question, when you say we are very optimistic for the second half. Well, in fact, it's not about being optimistic or pessimistic. I think we assess what we see in our order book. We can only say that the order book is healthy and that the guidance reflects it The second point is that in the 2nd year, the spreads between the dollar in the second half of last year, And yes, let's say the current one that we see, if the current one would go on, then it's, it's not going to be such a large spread.
Does the expansion in the expansion plans that we have, in Eper contribute? Yes, Eper will already contribute because the idea is that, the building should be operational like around summer later September, which means we will see some of that flowing in to the to the 2018 figures. Sophia, we just started and the building will not be completed until end of next year, so there will not be a direct impact. But of course, we are continuing also to put more equipments in, in order to have larger capacity in Sofia. So this is a gradual, like we do in Niper, like we do in Air Force, like we do in Coaching.
I mean, it's a gradual increase the, of the capacity, as such. So gradually that will also contribute, but that's all factored in. And as far as core base concerned, we are not going to start, until, or we're going to ramp or kick it off, let's say, Q2 operationally, but the ramp, the real ramp will not be for this year. The real ramp is then more or less end of the year beginning of next year. And because it's a wafer probing site, It also means that it will not flow into our, into our output until maybe Q1, Q2 next year.
That's more or less the, when the capacity comes on board. Now then on your second question, indeed that goes back to, what I said before. I think it's clear that the adjacent markets are much more volatile than the automotive market. Far as visibility is concerned, the automotive markets these days or let's say the last couple of years are much less give us much less visibility than it was before. And that has to do also with China, because China is still learning how to forecast Our customers are, don't have planning in their vocabulary, sometimes in China, So that needs to professionalize and we hope it will continue to improve.
We do already see improvements there, but very hard. That's why it's also more difficult today, than in the past to make good estimates. But I think we didn't do too badly in the past. So we try to be realistic in any assessments that we make. And as far as the non auto is concerned, the adjacent, like we prefer to call it, yes, I do expect it to pick up the only problem is that it's very, very it's even harder to predict.
So the intention is there. The products are coming slowly on board. We see good design wins in that space. We well, not design wins necessarily be the good pipeline, I'd rather say. And yes, at some point in time, it will pick up, but it more or less grows at the same pace as automotive, which is really already very good comparing to, some of our peers.
So I hope that, answers your questions
Okay. Thank you, Chris, to clear off all this. Thank you.
Your next question comes from the line of Janardan Menom from Liberum. Please ask your question.
Hi, good evening and thanks for taking my questions. You said in your previous answer that perhaps the reason for the sort of lower than past seasonal trend into Q2 with supply chain effects. I was just wondering, could you just describe a little of what you mean by your supply chain effect? And then I have a couple of follow ups.
Yes. Well, Yes. Customers are always concerned for 2 things. 1, the inventory should not be too high. And they keep that clear with very tight KPIs sometimes.
And then, of course, when people in the procurement area are in the planning area have these KPIs, they look at it because they're penalized if they don't keep their inventories at the right levels, not too high. So that's one thing that could influence The second thing that is important for our customers is the security of supply. And as is commonly known, in the industry already last year as well, there is a tightness that leads to some customers, getting at some point in time into maybe a panic. I don't know. And yes, we cannot exclude, as I said it in previous calls as well.
Yeah. You can never exclude that, customers would order a bit more than they usually would if there would be not tightness, no tightness at all. So the two things, play together, and you can never really because we're not in the heads of our customers and we're not in the systems of our customers, you can never really know, what plays there is always some fluctuation. There is also the fluctuation in demand, that ripples through the through the supply chain. There is a time delay with that.
I mean, it's the usual supply chain fluctuations that you would normally see. Maybe there are a bit more these days because of some uncertainties. But we don't really have a big question mark about it because again, we confirm the order book is healthy and the guidance reflects the order book. We try to be as realistic as possible.
But just I mean, going back just going with your previous experience of being in this industry for a long time, when you go through a situation where there is some degree of, say, double ordering as you were alluding to And then you see that soft and a little bit perhaps even on a temporary basis. Is that a sign of turn for the how the overall market is trending or you would not regard that as a particularly a major concern at this point in time?
No, I would not consider this as a concern. If we talk to our customers, then, they see growth. They see new applications for them. We get very good design wins. We have, we have gained the gain market share in a number of, in a number of places.
And in general, the market is, in Europe, for example, is very good. The market in China is also good. It's maybe, and it's maybe not if you look at the figures of car sales, it might be a little bit soft but that has also something to do with the tax incentives that are being reduced. But overall, I was even in China, myself, last week, talked to quite a number of customers, and they all see growth coming. So it's even if it would be a bit soft because of maybe supply chain effect, it does not reflect the trend as such.
We don't see any indicators today that would lead us to say this is a trend? No, it is not a trend at all. Because again, Q3, we see Very good sequential growth coming.
Understood. So just on that, on that last point, to get say your midpoint of around 13.5 percent growth, you would need to do, 4% and 8% or 5% 7% or something like that in the 3rd and the 4th quarters, which would be higher than what you have historically done in the 3rd and the 4th quarters, at least in the past few years. A does that suggest that going the other way that your customers are probably even more bullish about the second half than they have been in past years? I how would you characterize the optimism about the market today versus what you saw say at a similar point last year?
I, I don't like the word optimistic because it suggests that, it would be more than, realistic possible. What I said was that the customer sentiment continues to be positive, and that's all so, that's also what I feel when I talk to customers and what I feel when when the, when I get feet back from the teams that the sales teams, the product marketing teams that are in touch with customers. We make our best estimates always. We try to be as correct as possible. I think we've we have a name for that.
And today, this is our best estimate. So flat in q or around the same level in Q2 and, sequential growth to pick up again in the third quarter. That's what we see today. And there is no reason why this would not be, would be impossible because we do the right levels of interest and new products coming on board, new programs coming on board. Organic growth in the existing programs.
That's what we see when we talk to customers. So that's why we assess that this is, that this is what it probably will be without having a crystal ball. Sometimes I would like a crystal ball.
Thank you for your question. Your next question is from Marc Engel from Degroof. That's come. Please ask your question.
Thanks for taking my question. There's already been a lot of ground covered. Just one question, given the material impact of, the euro dollar rates on the quarter, and probably also on the coming quarter, on the revenue. Is there also an impact, or has there been will there be in, the current quarter on the growth in the EBIT margins that you could possibly quantify?
Yes, the guidance is for around 25% for the full year. Obviously, quarter to quarter is to predict, but in general, we, we, we stick to that guidance. So sales will increase. Operational expenses will increase as well. And the 2, yes, how much it will be in sync is very difficult to predict but we don't expect the major deviations in one way or the other.
So there's not really a big time lag between the impact on revenue and the impact on the margin?
Yes, in Q2, there might be a little bit more impact still if you have flat sales growth, we are hiring. We are also investing. So this might play somehow But we need to say as well that we have a dollar effect in Q1, a negative dollar effect, which we will not have in Q2. So that might compensate.
Okay. In the on the inventory.
And the next and last question in the queue is from Jeff Osborne from Cowen And Company. Please ask your question.
Hey, good afternoon. Most of the questions have been answered, but just a few quick ones from me. I was wondering if you could just touch on, thematically. Are you seeing more strength in the booking in the revenue in ADAS applications or electrification, you typically highlight both, but I didn't know if there's a bias towards one or the other.
Well, what we do see today and definitely in combination also with with what we see on the market is electrification is really, driving a lot. There is also some others impact or, let's say, influence rather. But the other programs a rather, longer term, so on a longer horizon, whereas the electrification items or programs are much more short term. So I would say, electrification, at least as far as the portfolio of Melexis is concerned today, electrification impacts more than autonomous or assisted drive.
Got it. 2 other quick ones. One, the five items that you, you went off with ambient lighting and finishing with magnetic sensors. Were those in order of strength in the quarter, meaning ambient lighting was, what drove the revenue? I was just curious how you came up with the order that you wanted to discuss those?
Well, the order in which I wanted to discuss it had nothing to do with the, with whether the first one was stronger than the last one or vice versa. So. It's just that, the first one is a driver, type of product and all the others are sensor
Got it.
It was a bit in, yes, it's not at random necessarily. That, of course, the magnetic space, you have the latch and switch. The last 2 were in the magnetic space, such and switch and then magnetics, sorry, position sensors The first one was a driver and the 2 middle ones were other types of sensors. It was more at random than anything else.
Okay. Makes sense. And then the last one, just any thoughts on tax rate for the year? What we should be assuming there?
Well, we gave the guidance 15% to 20%. And that's still that remains intact. We
have not
Thank you. Forward to our next earnings conference call
Ladies and gentlemen, this does conclude your conference for today. Thank you very much for participating. You may now all disconnect.