Good day, welcome everyone to the X-FAB quarterly conference call hosted by Rudi De Winter, the CEO of X-FAB. My name is Victoria, I'm your event manager today. During the presentation, all your lines will remain on listen-o nly. If you require assistance at any time, please press star and zero on your device and a coordinator will be happy to assist you. I would like to also advise all parties that this conference is being recorded. With that, let me hand it off to your host, Rudi De Winter. Rudi, you may proceed, please.
Thank you, Victoria. Welcome, everyone, for the fourth quarter result and full year of 2022. We have here in the conference room also Alba Morganti, CFO of X-FAB. In the fourth quarter, X-FAB recorded EUR 183.6 million revenue within the guidance of EUR 180-190 million, and it represents an increase of 7% year-on-year and 2% down quarter-on-quarter. The Euro weakness in the fourth quarter compared to the previous year continued to have an impact on the top line growth. At stable exchange rate, the revenues would have gone up 12% year-on-year. Full year revenues ended at EUR 740 million within the guided EUR 735-745 million, up 12% year-on-year.
In X-FAB Automotive, Industrial, Medical accounted for EUR 618 million, up 18% year-on-year, reflecting the strong demand in these end markets. Our comprehensive technology portfolio perfectly fits for products enabling all kinds of electrification to decarbonize our world. Fourth quarter revenues in our core markets ended up at EUR 161 million, up 17% year-on-year and 3% quarter-on-quarter. The portion of core Automotive, Industrial, Medical increased significantly to 88% of our revenues, which is mainly driven by the Automotive business. Fourth quarter Automotive revenues reached an all-time high of EUR 104 million, up 25% year-on-year and up 8% quarter-on-quarter.
The increase primarily reflects the ramp up of the Automotive business at our factory in X-FAB France, where the capacity conversion from legacy business to X-FAB technologies is gaining momentum. The proportion of the French sit e revenues based on X-FAB technologies now increased to 84%, where it was 56 in previous quarter. In 2022, the Automotive demand continued to be driven by the transition to electric vehicles and the associated increase of semiconductors cars, semiconductors in the cars. In the fourth quarter, Industrial revenues came in at $42 million, up 7% compared to the same quarter last year and down 9% quarter-on-quarter. In the full year 2022, X-FAB Industrial business recorded a growth of 19%.
The shift to renewable energy drove demand for power semiconductors, which is expected to accelerate further by more stringent regulations for companies across all sectors to reduce greenhouse gas emissions. The Silicon Carbide revenues in the fourth quarter accounted for $12 million, up 15% year-on-year. The 30% quarter-on-quarter decline is entirely related to the increased portion of customers procuring their own Silicon Carbide wafers and consigning them to X-FAB rather than X-FAB selling the Silicon Carbide substrates. While this has reduced the top line, particularly in the Industrial where the Silicon Carbide contribution is marginally higher, X-FAB value creation remains unaffected, and the fourth quarter Silicon Carbide wafer output was the same as the strong previous quarter. Full year Silicon Carbide revenues came in at $54 million, and this is a growth of 61%.
Fourth quarter Medical revenues totaled EUR 15 million, up 1% year-on-year and 8% sequentially. In 2022, Medical revenues came in at EUR 56 million, an increase of 16%. X-FAB benefits from the growing trend to use semiconductors technologies for advances in the prevention, diagnostics, and treatment and monitoring of diseases. The main growth drivers in 2022 were DNA sequencing as well as ultrasound and contactless temperature sensors. In the fourth quarter, X-FAB CCC business recorded revenues of EUR 22 million, down 36% year-on-year and down 30% quarter-on-quarter. This is in line with the plan to convert the capacity of X-FAB France from legacy business to X-FAB technologies. Full year CCC revenues for the same reason decreased to EUR 119 million, down 10% compared to previous year.
The freed-up capacity is fully converted or will be fully converted to further ramp up the production of X-FAB high- demanding 180nm, primarily for Automotive applications. The backlog in the fourth quarter reached a record of $480 million, while quarterly bookings came in at $191 million, with a book-to-bill of 1.04. Demand remains high. X-FAB expect its core business to grow strongly in 2023. Automotive revenues are forecasted to increase by approximately 35% over 2022. The Industrial is expected to grow about 25% and the Medical by about 10%. CCC revenues will further decrease at a rate of approximately 2%. This is supported by the increased visibility resulting from the introduction of Long-Term Agreements with our customers.
To date, seven LTAs have been signed, covering a large portion of the 200mm CMOS capacity with a total value of about $1.4 billion over 3 years, 2023, 2024, 2025. X-FAB also has started LTA for our silicon business, Silicon Carbide business. One LTA has been signed and 5 more expected to be signed in the first half of 2023. The Prototyping revenues came in at $24 million, down 2% year-on-year and 4% up compared to previous quarter. The amount in 2022, the total amount of prototyping was $91 million, up 3% compared to previous year. In the fourth quarter, all sites continued to operate at high loading driven ongoing initiatives to increase productivity as well as to implement capacity expansions measures.
X-FAB Malaysian site successfully recovered of the power outage in early October. Quarterly Capital Expenditures came in at $54 million. The total for the year was $181 million. This is slightly less than the forecasted $200 million. This is predominantly because of delayed deliveries of equipment. In response to the strong demand, X-FAB is expanding capacity at all sites and plan to invest a total of $1 billion over the period 2023, 2024, 2025, of which approximately $350 million are expected to be spent in 2023.
The key investment projects include the capacity expansion in a factory in Sarawak, in Malaysia, and a continued conversion of capacities to Automotive in a French site, as well as for the Silicon Carbide in our factory in Lubbock, where we will bring the capacity to about 17,000 wafers per month. The financial update I would like to pass now to Alba.
Thanks, Rudi. Good evening, ladies and gentlemen. Now let's look into the financial update. Let me start this section by highlighting that in the fourth quarter, we registered an EBITDA of $42.2 million with an EBITDA margin of 23%, which came in at the upper end of the guided 20%-24%. Thanks to our natural hedging strategy, the current weaknesses of the Euro experienced in the fourth quarter had no impact on our earnings, while our price increases offset cost inflationary pressures.
This natural hedging strategy continues to keep our profitability independent from the fluctuations of the US dollar/Euro exchange rate, and it's clearly visible in the EBITDA results, because if you compare the USD /Euro exchange rate of 1.14, which was experienced in the previous year quarter, the EBITDA margin would have been only 0.2 percentage points higher. Now let's walk over our cash and cash equivalents, which at the end of the fourth quarter almost amounted to almost $370 million, which represents an increase of almost 13% compared to the previous quarter end and confirms a solid cash position to sustain our growth. Cash flow from operating activities was $54.5 million, fully covering capital expenditure in the fourth quarter.
I would like to share our guidance for Q1 next of this year. The revenue, which is expected to be in the range of $205 million up to $220 million with an EBITDA margin in the range of 22%-26%. For the full year 2023, revenues are expected to come in in a range of $880 million up to $960 million, with an EBITDA margin in the range of 23% up to 27%. The aforesaid guidance is based on an average exchange rate of 1.08 USD/ EUR. Now I would like to give the word back to Rudi.
Thank you, Alba. To summarize. We closed the 2022 with a continued high demand, and I see X-FAB very well positioned for future growth and success. X-FAB is in the sweet spot of the semiconductor market, our expertise in specialty applications for Automotive, Indus trial and Medical continues to get a lot of attraction in the market. In the fourth quarter, X-FAB's Automotive business accelerated and set a new record reflecting the strong customer interest as well as the progress we have achieved in ramping Automotive capacity at our French site. This positive overall trend will continue in 2023, our key focus is on execution, excellence and productivity improvements to meet customers' demand. Introduction of Long-Term Agreements with customers has significantly increased the visibility of our business, providing a solid foundation for major investment projects we have initiated in 2022.
We are well on track to not only reach the EUR 1 billion revenue in 2024, but to continue to grow strongly beyond. Thank you. So far as an introduction, Victoria, we can now open for questions.
Absolutely. Everyone, your Question and Answer session will now begin. If you wish to ask a question, please go ahead and press star and One on your device. If you decide to withdraw the question, simply press star Two. All questions will be answered eventually, and you will be advised when to ask your question. All other lines will remain on listen- only. Once again, everyone, if you have a question, please go ahead and press star one on your phone. Thank you. We have the first question from the line of Johannes Riese. Please go ahead. Your line is open now.
Yes, hello. This is Johannes Riese. Maybe two questions first regarding your Silicon Carbide business. You mentioned this different ways that the customers deliver the wafers, but you said maybe your own value creation is the same. Therefore, so the margin must be higher because it's on a lower revenue base, first point. Secondly, you mentioned about this long-term contracts you are negotiating for the Silicon Carbide business. Can you give us an idea how strong maybe this business can grow going forward in 2023 and years after 2023? I think in the past, you talked there is an opportunity maybe to bring this business to $200 million.
Is it still the target or is there any adjustments to this?
Thank you. Yeah. First of all, indeed, as you know, the Silicon Carbide substrates we do not manufacture ourselves, so we buy those, just like we buy silicon substrates, but they are rather expensive in the total value chain. We have different models. On the one hand, where we source the substrate and we sell the full service to our customers, and the ones where some customers consign wafers, and we charge them for the processing. In some cases we also add the epitaxy. On the epitaxy, we're still in a phase of ramping up.
We will normally have four more equipments in production in the second quarter this year. This will contribute more starting in the second quarter. That's the explanation why the revenue dropped on the Silicon Carbide. Indeed our relative contribution and value add there increased, and so that has a positive effect on the gross margin as percentage. On the with respect to the growth potential, yes, I can confirm that we're still aiming there to grow that business to $200 million or more.
$200 million in three, four years, or what could be the timeframe?
Yeah. Yeah, I think, yeah, less than three years.
Less than three.
For the 2025 horizon, that's the range we need to think of.
Great. Second question, in your growth ambitions and the targets, how much is volume increase and how much is price increase?
Uh.
Assembly twice.
Yeah, for 2022, I would think it is in a rough number. I think it's something like 50/50 volume and price increase.
In your guidance for 2023, it's the same, or they have changed?
Yeah. The guidance for 2023, I would say is that, If you compare apples with apples, there is a portion that's coming from price increase, there's a portion volume, and there is a portion product mix. It's about one-third, one-third, one-third.
Okay. Super. Last question. You invest a lot, no? You invest $1 billion in the systems the coming years, and you just said, you see, you're on the way to grow over $1 billion in next year and to grow to show strong growth further on. With this investment you're doing, what is the capacity you build for today's pricing or maybe the surprise development you see in the future?
Yeah.
The assignments, maybe Melexis is your customer, as for example. What is the potential capacity you can maybe, for, the revenue volume you can handle with this capacity going forward?
Yeah. I think, well, what's important to note is that the capacity or the CapEx that we spent so far almost brings us to this $1 billion. The revenue in 2024. Most of the equipments that we need for the revenue generation of around $1 billion in 2024 or above is almost in place. It's being installed and qualified and so forth. This $1 billion extra investment that we kicked off is for the growth beyond that. With this $1 billion CapEx executed, it gives us a potential or a revenue potential that we can generate that I believe is beyond $1.5 billion.
Great. Super. Thanks a lot.
The next question is coming from the line of David O'Connor. Please go ahead. Your line is open now.
Great. Thanks for taking my questions. A couple on my side, if I may. Maybe firstly just on orders really, just saw it down 12% quarter-on-quarter. What's behind that Q and Q decline like and what has the trajectory of orders been like through January and to the start of February?
Well, I said the demand is still very, very high. We still have a lot of escalations with customers where demand is higher than the output right now. We try to navigate so that there is no line stops, but there is no inventory, or very low inventory. Well, we have also a record backlog. The backlog mentioned for almost $500 million is about three times what it used to be like two years ago.
This very high backlog, it is also the reason why customers, you know, they do not need to throw in more orders, particularly because their capacity for a lot of the customers, the capacity is reserved through their Long-Term Agreements. That is so I expect that these orders, they will not, actually the bookings is a technical aspect that will probably just now be in the range of the billings, I think going forward.
Understood. Thanks for that. Maybe just on the backlog that you mentioned, what's the quality of that backlog look like? Just wondering how fungible that is, and would you expect it to kind of decline from here, given the fall off on the consumer side?
What do you mean with the quality of the backlog? These are firm orders. These are all firm orders with a delivery date and non-cancelable. Is that what you're?
Yeah. Just to understand, are they covered? Is that backlog, pretty much fully covered by LTAs? Has it been confirmed?
Well.
Is just to-
No.
Yeah.
When I refer to the backlog, these are firm orders, from customers, that, yeah, that have LTAs, but also a lot of customers who do not have LTAs, where they placed an order and that's non-cancelable. The LTAs, they go beyond the backlog.
Understood. Thanks for that. Maybe last question on my side, just on the growth forecast for looking at the different segments, auto, Industrial. For 2023, on the Automotive side, is there new customers coming in there driving that growth or is that growth driven pretty much by existing customers? On the Indu trial side of things, again, you know, what is the. Some peers are guiding more flattish for 2023, given that there's parts of that we're seeing some weakness and more on the B2C side. Maybe on the also, you know, is that new customers or which exact technologies and applications are driving that? Thank you.
Yeah. The customer base at X-FAB is not so dynamically changing, so we typically have very long-term relationships with our customers. We did increase our customer base on the Automotive, so we're from about something like 50 or the high 40s to something like 60 Automotive customers. It's predominantly the relationship with our customers that we're further building out and trying to serve the customers well and supporting their growth. In the Industrial, yeah, we quite some Silicon Carbide is also categorized in the Industrial , and that is also helping with the growth there.
Excellent. Thank you.
The next question is coming from the line of Guy Sips. Please go ahead.
Yes, thank you. Two questions from my side. First is, what percentage of the guidance that you have for 2023 is covered by LTA? The second question is, looking back at the power outage in Malaysia, what is the financial impact, or was the financial impact, and how uncommon are these kinds of disruptions? Does it happen every 7, 8 years, or is it something that we never discovered before?
The start maybe with the disruption in the factory in Malaysia. This specific event is like a one-of-a- kind, we haven't had something similar there in that factory, in the existence of the factory. That was the impact was somewhat better than or less than anticipated. The recovery was very well, but I would assess it still something in the range of a $10 million loss of revenue there. Now the yeah, because the factories are running at maximum capacity, it's hard to recover that because the demand, it's more or less, yeah, a revenue which is not, it will only be recovered in the longer term. What since...
I'm sorry, what was the other question or your first question?
What was the amount covered by LTA? Yeah.
I mentioned that we have about $500 million backlog. This is already of our guided revenue of around $880 million-$960 million. This already 60% or 70% of that revenue is covered by orders that customers already have placed, and then the balance there is from the other $400 million roughly. I would say that half of that is also covered by LTAs already. That means that there is still something like $200 million to book, but I'm very confident that that will come in as we go.
Okay. Thank you.
The next question is coming from the line of Robert Sanders. Please go ahead now.
Yeah. Good evening. Hi. I have some questions on firstly on Silicon Carbide. I was just wanting to understand if you ramped to 17,000 wafers a month, should we assume like a $1,000 ASP for mainly epi-wafer services, or, should we assume more like $1,500 as in a mix of substrate plus epi-wafer and epi-wafer?
Yeah. It is a bit complicated because we have the mix of device processing, epitaxy, and then substrates. Yeah. If we maybe leave out substrates, because the substrates we either buy external and then charge to the customer with a marginal add-on. On the epitaxy, we will grow our epitaxy capacity over the next years. I think in the mix, you need to count for something which is closer to maybe a $1,500 for device processing and protection.
Got it. On the transition to 200mm in Silicon Carbide, obviously Wolfspeed had a lot of challenges, but, you know, STMicroelectronics will ramp up soon. Are your customers pushing for that, on the roadmap, or is it something beyond this decade?
I would say it's more beyond this decade or at the end of this decade. The way I see it is that there isn't really 8-inch substrates out there and the investments we do in our factory in Corbeil-Essonnes is 200mm capable. However, we do not intend to switch because it's still far out.
The single way for epi tools you buy are upgradable to 200mm without having to.
Yes.
buy new tools.
Yes.
Okay.
The implanters, which is a big portion of the investments, they are 300mm implanters. But they're only used for 150mm wafers.
Okay. I'm just trying to tie your guidance to. I'm sorry if this was asked already, but Melexis basically said that they're gonna grow in the teens, but that's almost entirely pricing, so they're not really getting more wafers from you. I understand you had the Malaysian power outage, but is there something happening in France that you're not ramping as much volume as you would've liked? It seems like you should be growing more wafers to your biggest customer.
Yeah. We're growing the amount of wafers going out, but that's clearly. As explained, our growth is a mixture of quantities. I would say maybe in quantity in 2023, it should be somewhere around 10%. We have a product mix also because we are growing the Silicon Carbide and so forth, which does not. Melexis is not a Silicon Carbide customer. We also have on the product mix where we're going to a richer product mix. I mean, more layers per wafer and more value at wafers.
Okay. My last question was just, you know, given that, you know, I guess what revenue will you have when you ramp the fab, the France fab to full capacity? I mean, what is the current feasible revenue of your current footprint once you've fully built it out? When do you need to think about a secondhand fab, like whether it's 200 or 300?
The fab, so the revenue we were running last year and what we are aiming at in the with all the expansions that I mentioned, we should do, like, 3.5 times the revenue.
Three and a half times-
In France, yes.
Of France only.
This is still a... Yeah, yeah, that's France only. Yeah, yeah.
Yeah, yeah. Okay. You can maybe get to EUR 1.1 billion-EUR 1.2 billion full build out revenue.
As mentioned, before, with the $1 billion that we are investing in 2023, 2024, 2025, that is predominantly our factory in Malaysia, where there is additional clean room space and equipments in there. There is equipments and debottlenecking further in the factory in France and then the Silicon Carbide. We will have a revenue capability that goes just over $1.5 billion.
Okay. you don't need to think about a 300mm fab for quite a while then. Okay. Thank you.
The next question is coming from the line of Michael Roeg. Please go ahead.
Yes, good evening. In one of the earlier questions, you mentioned that sales growth in 2023 will be split roughly one third, one third, one third between volume, price, and mix.
Mm-hmm.
The price increases, that I assume is simply to pass on higher input costs, so there's no margin or gross margin impact from that. Volume growth and mix effect, will they both have a positive impact on your gross margin?
Yes. The price increases, they are to cover the inflation and also to cover the future increased depreciations of the extra capacity that we're putting in or the investments that we do for our customers to grow the capacity. That will increase the depreciations, and it's also one of the reasons for the price increases.
Okay. If I look at your bookings, 192, slightly lower than the previous quarter, but that already includes those price increases, correct?
That, yeah, so these are bookings for, you know, that's most of it includes the price increases, yeah.
Okay. And, and, when will you have the final tail of your old backlog in your sales with old prices prior to price increases? 'Cause, you know, that started early last year, and you still had to convert that old backlog. When is that finished?
Well, I would say that, in Q2, there's maybe still some hangover in Q1, but most of it will be converted by end of Q1, yeah.
Okay. Just mathematically, in Q1, we'll have a gross margin, and then in Q2 and beyond, there should finally be some positive impact from those price increases with the gross margin expanding.
Yeah.
Okay.
Yeah, the-
That's-
Yeah, that's correct. Yeah.
Okay. That's it from my side. Thank you.
Currently, we have no further questions in the queue. Just a kind reminder, everyone, if you wish to ask a question, please go ahead and press star one on your device. Thank you. The next question is coming from the line of Emmanuel Matot. Please go ahead.
Hello, Willy. Hello, Alba. Two questions from me. How do you plan first to finance your $1 billion CapEx budget for the next three years?
Emmanuel. Hello. We have the first portion will come from the LCA or the cash advances that the customers are paying, started already to pay. It's, we expect to have around $250 million-$300 million out of those advanced payments from customers. We will also increase our current credit lines, a part will come obviously also from the operating incomes of the business.
Okay.
Don't forget it's over three years, right? It's, we are already producing cash. We are cash positive. The further growth will bring additional flows from operating activities.
Okay. Understand. Second question, have you reached the break-even at the EBITDA level in France during Q4?
Mm-hmm.
It will happen later during the new year?
It will happen later.
Yeah
in this year.
Yeah.
What do you need to reach your breakevens? In Q4, you moved to a very high level of production coming from your core technology. What is the upside to.
Yeah, that is correct. Yeah, that's correct. That the core technologies are already at a high percentage, but the overall output needs to further increase. I, as I explained before, we expect in France compared to last year revenue and where we wanna be with the investments that will and the LTAs and so forth that we have, that we multiply the revenue by 3.5 in. There's still 200% growth still to come.
Okay. If I remember well, you have a target to reach 30% EBITDA level in 2024.
Mm-hmm.
I think the leverage is mainly coming from France. That's correct?
Well, in fact, a bit from all the sides. Also the MEMS business brings a higher margin and is ramping up. In all the sides, the more output we bring, the better the economy of scale and the better the margin. It is indeed true that the biggest growth is in France. MEMS is also growing well and we'll have a leverage there of the economy of scale and then the Silicon Carbide.
Okay. Thank you very much.
The next question is coming from Veerle Hendrickx. Please go ahead.
Hello. Hi. Thank you. I read somewhere that electricity is, if they succeed in getting their chips spread throughout the world in cell phones, they would have them fabricated by X-FAB.
Is there any projection on what kind of revenue that could bring? Is there an idea of if you can handle that added capacity and in the term that it would be needed if it really explodes, suppose?
Well, that, I cannot comment on this specific case, but, we are, it's a specialty process that we're doing for them. We are on the conservative side. In the plannings, this is still not fully taken into account.
Yes, it's too early right now. It's okay.
Yeah.
Okay. Yeah. Okay. Thank you.
The next question is coming from the line of David O'Connor. Please go ahead.
Yeah. Great. Just one quick follow-up on my side. The CapEx for 2023, $350 million, how much of that is maintenance versus capacity expansion? Of the capacity expansion, what are the kind of the main buckets there, Malaysia versus Paris versus SiC? Thank you.
Ooh, there's a lot of questions there. I would say on the maintenance CapEx is maybe EUR 50 million or something in that range. It's really like EUR 300 million roughly capacity expansions, but also buildings. The portion of will be the building in Malaysia that's now really starting to get to speed and should be ready to move in equipment somewhere third quarter of 2024. I do not have a specific breakdown here per factory or per like that. The biggest pockets are Malaysia, Corbeil, France, and a bit of Lubbock for Silicon Carbide. These are the biggest portions.
That's helpful.
mm-hmm.
Got it. Thank you.
Currently, we have no further question in the queue. Once again, everyone, if you have a question, please go ahead and press star and one on your device. Thank you.
Seems there are no further questions.
Yeah.
If there are-
Confirm there are no further questions.
Okay. Thank you very much, everyone for attending the call today, and, I'm looking forward to hear you again, on the 27th of April for the communication of the first quarter results, 2023. Thank you very much and have a good evening.
Thank you. Goodbye.
Thank you. Everyone, that concludes your conference call for today. You may now disconnect. Thank you for joining. Enjoy the rest of your day.