Good day, and thank you for standing by. Welcome to today's X-FAB quarterly conference call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. At which time, if you wish to ask a question, you will need to press star and one on your telephone and wait for an automated message stating your line is open. I must advise you that this conference is being recorded. I would now like to open the conference over to your speaker today, Rudi De Winter. Thank you. Please go ahead.
Thank you, and welcome everyone to the first quarter 2022 quarterly results call. We have also in the conference call here today, Alba Morganti, CFO. The first quarter of 2022 business was very strong, and we recorded a revenue of $179 million within the guidance, and it is up 15% year-on-year and 4% quarter-on-quarter. Bookings remained strong at $239 million, further increasing our backlog. First quarter revenues in our core markets amounted $145 million, up 16% year-on-year and 5% quarter-on-quarter, accounting for 81% of the total group's revenue. The first quarter highlights include record prototyping revenues in automotive as well as all-time high volume production revenues in industrial and medical.
Overall, the medical recorded the strongest revenue growth, up 59% year-over-year. While the automotive and industrial rose respectively 7% and 28%, whereas all segments were limited by capacity allocations. The first quarter, CCC revenue came in at $32 million, up 6% year-over-year. The pipeline for new projects is solid, reflecting continued strong prototyping revenues in the first quarter, which amounted $25 million, up 30% year-over-year. We also see accelerating transition to green energy and mobility, driving the demand for X-FAB silicon carbide technologies and other supporting applications, spurring growth in industrial and automotive. First quarter silicon carbide revenues almost doubled compared to the same quarter last year and reached $12 million.
X-FAB medical business continued strong as well, and in particular, the digital healthcare covering point of care diagnostics and personalized medicine for telemedicine. As in previous quarters, lab-on-a-chip applications were the main driver. They require a combination of CMOS and MEMS, which is a very strong element of our offering. In the first quarter, as order intake remained exceptionally strong, capacity allocations had to be continued while every effort is made to supply customers with the quantities required to avoid supply chain disruptions. At the same time, the ramp-up of our X-FAB technologies in X-FAB France progressed well, contributing positively to the first quarter revenue growth. The share of French site revenues based on X-FAB technologies reached 42% in the first quarter, supported in particular by automotive growth, while the consumer demand for the X-FAB RF-SOI technologies was rather weak.
On the operations update, we can further say that the first quarter, X-FAB factories continued to run with high load, which, with the continued high demand, increasing productivity and removing production bottlenecks at all sites remained a key priority and a major operational focus throughout the quarter. Multiple new tools ordered in 2021 were delivered, as we went through the quarter, and they are adding gradually to capacity. Labor markets remain tight in all regions, and strong focus has been placed on recruiting and employer marketing activities to ensure there are sufficient staff available to handle the high workload in the fabs. We also suffered still from higher absence rates due to COVID quarantines.
In light of the current volatility of supply chain, and even more so to support the group's future growth, X-FAB is closely monitoring the supply situation, taking appropriate measures to mitigate any supply risks. This includes the qualification of second and third-source suppliers as well as geographically diversification. To date, X-FAB has not been impacted by supply shortages. Capital expenditure was $49 million in the first quarter, reflecting equipment orders mainly from 2021, which were delivered during Q1 2022. Full year capital expenditure is expected to come in at around $200 million. X-FAB is expanding its capacities across all sites in response to the increase in demand, and as well short-term as long-term. I'd like to pass now to Alba.
Thanks, Rudi. Good evening, ladies and gentlemen, and now let's go over the financial update. We are very pleased to share our positive performance of the first quarter, 2022. As you can have seen, our first quarter EBITDA was $41 million with an EBITDA margin of 23%, which was really at the upper side of the guided 19%-23%. Utilization rate was 86%, which further grew from 82% of Q4 last year. Top line growth contributed positively to profitability, as well as the substantial increase of unfinished goods inventory, which amounted to $12.4 million in the first quarter. This is the result of the increased number of mask layers produced by the factories in line with future growth.
As expected, in this particular context of tensions, cost inflation and rising depreciation resulting from the group's capacity expansions projects put pressure on margins. In order to compensate for this effect, we are currently increasing pricing accordingly. Cash and cash equivalents at the end of the first quarter amounted to $259.3 million, which represents a decrease of 11% if we compare to the previous quarter end. In the fourth quarter, 2021, we had drawn funds of about $78 million from our revolving credit facility, which were partially used in the first quarter to cover CapEx expansion payments for new equipment delivery. Euro-denominated sales share came in at 40% during the first quarter, which is absolutely in line with our level of cost incurred in euro.
The actual US dollar, euro exchange rate for the first quarter of 2022 was 1.12, leading to an EBITDA margin of 23%. If we compare with a constant exchange rate of 1.21, which was experienced in the first quarter of 2021, EBITDA margin would have been 22.8%, so almost the same. This demonstrates that the achieved natural hedging of the business has made our profitability development robust against exchange rate fluctuations. Our guidance for Q2 2022 revenue is expected to be in the range of $180 million-$190 million, with an EBITDA margin in the range of 20%-24%. The aforementioned guidance is based on an average exchange rate of 1.10 US dollar to euro.
Now to conclude, I would like to add that based on the accelerated market development, we have adjusted our long-term guidance. Thus, we expect to reach the $1 billion revenue in two years, actually earlier than originally planned. This means that we should reach $1 billion revenue in 2024 rather than in 2026, as we said in the investor day that we organized in May last year. We also raised the corresponding EBITDA margin guidance to something over 30% compared to the previously announced level of over 27%. I thank you, and now I would like to give the word back to Rudi.
Thank you. To summarize, in the first quarter we saw a continuation of the strong market demand, both for production as well as prototyping, reflecting how well X-FAB is strategically positioned. With our automotive, industrial, and medical business, we are serving the strongest growing end markets for semiconductors, and our technology portfolios enables much needed innovative solutions, especially for accelerating transition towards green energy and cleaner transportation. Despite the manifold of challenges arising from geopolitical conflicts and tight supply chains, I'm very excited about X-FAB's growth prospects and see us well on track for sustainable success, which is also why we have adjusted our long-term guidance upwards. With this, I would like to open for questions, operator.
Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone and wait for the automated message advising your line is open. Please state your first and last name before you ask your question. If you wish to cancel your request, please press star two. Once again, if you wish to ask a question, please press star and one. Thank you. We will now take our first question. Please go ahead. Your line now is open.
Yes, hello. Ruben Devos from KBC Securities. Do you hear me?
Yes.
Okay, great. I've had a question related to the new EBITDA margin target. You've reiterated the sales target of $1 billion, basically, but you said it two years earlier than anticipated. Now that absolute sales target remains the same, but your EBITDA margin objectives have gone up by three percentage points. Yeah, the logical question is, what are some of the drivers there to lead to that margin improvement? Yeah, should we think about product mix, you know, better operational efficiency, productivity gains from installing new machines? Yeah, what are the underlying drivers here?
Well, this mainly price increases that so in order to so what we see is. Well, it's not the same guidance. It's actually the guidance is now two years earlier, so it's a much stronger growth. That means that we need acceleration of investment and moving faster, and so that means also on average, higher depreciations. We want to compensate that with higher EBITDA to not sacrifice on our EBIT.
Basically, I mean, you set the earlier guidance in, what is it, in June last year. At the time, we did not really have an inflationary environment as we have today. Basically, then you were expecting 27%, now more than 30. You are able to sort of, you know, increase prices by a significant margin more than the, you know, rising costs, basically, from inflation. That's how we should see it. Okay.
There is a very strong shortage on chips and all our customers want more than they anticipated. We are positioned very well, and this gives us some selling power. But we don't want to take too much advantage of this, but we need to invest more than and faster than we anticipated. We want the customers to participate in this.
Okay. As of when will that really start to kick in, let's say? Because, I mean, you talked in the press release about, yeah, that you're working on these pricing efforts. I think we've seen an update by Melexis, and they also had, like, a positive update from a margin perspective. Obviously, you're their most important wafer supplier. Yeah, for this year, maybe as of when could we really see an impact from that?
As I explained, we have a large backlog and that results in a delay of the price increases to become effective. We are now focusing on the long-term agreements that we're making with all our largest customers. These long-term agreements, they are based 2023, 2024, 2025. Some will include maybe 2026 and 2027. These the structure of these agreements will have a new price. That's
Okay.
In concreto, there will be some price increases still this year, but they are moderate because there is already so much backlog and they will become effective as of so in the LTA as of the first of January next year.
Also don't forget that we had to pull in some of the investments that were planned on a later stage due to indeed this growing and continuously growing demand.
Mm-hmm. Okay.
We had to also review our CapEx plans.
Okay. Very clear. Just on the sales guidance itself, I think if you take the midpoint of the guidance for this year, you could basically assume a 13% growth rate in the next two years to reach to that EUR 1 billion by 2024. Within the mix, like how should we think about the various segments? You know, which of the segments should be outperforming that 13% basically? Because you still have the CCC business, which I can imagine will, you know, further stagnate or even decline. Yeah, within the segments, how should we think about that?
Yeah. As a percentage of revenue, I think that the CCC, where now we are at 19% of revenue in 2023, 2024 will drop to maybe 15 or maybe down to 12 or so. Automotive will be. Well, our core markets will all grow strongly. But yeah, automotive is already a big part and that will remain the biggest part. I expect that all three segments will from now on gradually grow together.
Okay. All right. Just a small question related to your site in Corbeil. I think the press release mentions that the share of revenues based on X-FAB technologies was 42% in Q1. That's a bit lower than in Q4. I mean, generally, the trend was upward, but is there a specific reason for the slight decline?
Yes. So our X-FAB technologies, they consist of, you know, a certain part. Portion is automotive, and there was quite some portion in the RF SOI for consumer applications or for mobile in particular. That was performed slower than expected. Our automotive was performing better, somewhat better than expected. Well, I mean, when the market in automotive is very strong, we have allocation there. We could produce, we could sell more, but the fact that the consumer was somewhat slower also helped us to maybe be a bit better on the automotive side as well.
Okay. All right. Thank you very much. I'll be in the back of the queue again.
Thank you. We will now take our next question. Please go ahead. Your line now is open.
Hello?
Hello. Hi. It's David O'Connor here from the team at Exane. Can you hear me okay?
Yeah. We can hear you, David.
Great. Well, maybe in same vein as the last question, you know, pulling in the long-term guidance to 2024, I mean, what gives you the confidence right now in light of a kind of deteriorating macro backdrop that you can pull in that? I mean, there's no room in there for any recession or any scenario like that. Can you tell us what gives you the confidence to pull the guidance forward right now? That's my first question.
Well, it's because we are fully booked and we also for the following years, and we're signing up these long-term agreements with hard commitments from both sides. We have to deliver, and the customers have to buy the product. We take or pay style contract. A large portion of our revenue is covered through these take or pay agreements.
Okay. Understood. Good to hear. I mean, from this, can we imply that you're already sold out for 2023?
Yes. Virtually you could say that we are sold out for 2023 and 2024.
Okay. Very good. Maybe if I could just switch to the short term. Some of the peers reported the lockdown in China had an impact, and you also talked about the CCC business kind of being a bit weaker. Can you talk a small bit about any difficulties you're seeing or slowdown in China that factored into the Q2 guide? Yeah, that's my second question.
Well, for our manufacturing, we do not source much from China. Whatever we produce, we produce in-house. The supply is mainly from U.S., Europe and Japan, from chemicals and special materials and so forth. We're not too impacted of this from an operational side on the Chinese lockdowns. Our customers might be struggling with that, but that does not impact our revenue.
Okay. Got it. Then just lastly on the CCC business, it was a bit weaker. What are you seeing on the consumer side there?
Yeah.
Some of your peers have called it smartphones a bit weaker. If you could, talk around that'd be helpful. Thank you.
Yeah. We saw that, very strong, demand for these RF SOI products, in September timeframe last year. Well, customers were very, bullish, but that kind of dropped back, in towards the end of the year. The orders and output, for the time being is somewhat weak, where customers tell us that they expect it to recover in the second half of this year.
Very helpful. Thank you.
Thank you. Once again, if you wish to ask a question, please press star and one. Next question. Please go ahead. Your line now is open.
Yeah. Hi. What a strange process. Announcing myself, it's Rob from Deutsche Bank. Thanks for taking my question. My first question is around the billion-dollar target. If you compare it to 2021 sales, it's roughly 50% higher. Can you break out pricing capacity? Is it fair to say that pricing is about 40% higher and capacity makes up 10% of the two key drivers, or is there another element I need to think about?
Maybe if you compare it with 2021, then I would say it's about 50/50, that it is well pricing and in quantities. There is also an element if you compare it with 2021. There's also an element on product mix because we will be significantly reducing the consumer in our total sales, and it will be replaced by automotive, industrial and medical. It's kind of difficult to say. Not exactly comparing apples with apples if the product mix changes.
Got it. On silicon carbide, can you confirm, you know, when you'll be at a $100 million run rate annualized for this business?
That I expect somewhere maybe mid-next year or so.
Got it.
$100 million run rate, yeah. $25 million per quarter.
On the take-or-pay agreements, what percentage of 2024 is actually backed up by long-term agreements with take-or-pay terms today? What's stopping you just taking agreements all up to 100% if not 100%?
We do not like to take 100% on take-or-pay, because typically we do the take-or-pay agreements because it's a lot of administration and negotiation and so forth, with only the larger, so say the top 20 customers. We have 400 or more customers. The smaller customers also have higher pricing because it's lower volumes and it's more specialties necessary, right? We want to keep a corridor for that. That's why we try to book something like 75%-80% with long-term agreements.
Got it. Where are you today percentage wise on 2024? Like lower than 75%-80%, is it?
Well, the papers are not fully signed. However, the customers also are. They want. Not all the contracts are fully signed, but the customers they want more than what we can sign up for. The challenge is rather to find the right to give everyone the right share to spread the burden of not having enough products.
Got it. Okay. Thank you.
It's not a problem to come to this 80%. If we would want, we could sell 100% to our 20 largest customers.
Got it. Thank you.
Thank you. We will now take our next question. Please go ahead. Your line now is open.
Hi, good evening. It's Michael Roeg. Well, the past three years we didn't have long-term agreements. Okay. That inflation component should protect you from whatever cost inflation you may encounter.
Yeah.
Good. That's it for now. Thank you.
Thank you. No question at this time. Please continue.
If there are no.
Oh, we still have one question.
Okay. Yeah. Please go ahead.
Your line is open. Please ask your question.
Hi, Rudi. It's David O'Connor here again from Exane. Maybe just one follow-up on the long-term agreements with customers. As you mentioned two years ago, you didn't have this scenario. Today you do, given the, you know, supply-constrained environment. You know, and that's good to 2024. What's your sense from your discussions with customers that these long-term agreements are here to stay going forward? Do you get the sense that they're just to cover this current supply crunch, and once we get out of this kind of it would revert back to the classic kind of ordering pattern of customers? Or is this now the new kind of playbook going forward? Thank you.
All customers and system houses are so severely hit by the shortage and the logistical nightmares that are resulting from it, that it is a paradigm change, where again, people see that semiconductor manufacturing is not just something ordinary. The manufacturing of specialty products like we do is a very essential part of the value chain of semiconductor business. People realize this now, how difficult it is to get chips or more chips or other sources for chips. So we are in a paradigm change. People realize the value that we bring, and that's really a paradigm change. I think that will definitely be maybe the case for the next couple of years, maybe this decade.
Yeah, we don't know how next decade will go, of course.
Understood. If I could just squeeze in one quick one. On the 2024 guidance or the target, what's the implied silicon carbide revenues within that? Thanks.
I would think something in the range of $150 million or so.
Okay. Got it. Thank you.
Thank you. No question at this time. Please continue.
Are there any further questions?
No question at this time. Please continue.
If there are no further questions pending, then I would like to thank everyone for participating today, and looking forward to speak to you again, maybe in one-on-one in the next couple of days or hear you again in the end of the second quarter to report on the half year results. Thank you very much.
Thank you. Goodbye.
That does conclude our conference for today. Thank you for participating. You may now disconnect. Speakers, please stand by.