Welcome to X-FAB Q2 2024 Results Conference Call. My name is Alan, and I'll be your coordinator for today's event. Please note, this call is being recorded, and for the duration, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. If you require assistance at any time, please press star zero, and you'll be connected to an operator. I'll now hand you over to your host, Rudi De Winter, CEO, to begin today's conference. Thank you.
Thank you. Welcome, everyone. Today in the conference call, we also have Alba Morganti, CFO. In the Q1, 2024, sorry, in the Q2 2024, the revenues were EUR 205 million, down 9% year-on-year and 4% quarter-on-quarter, which is in line with the guidance of EUR 200 million- 210 million. Revenues in the core markets, automotive, industrial, medical, accounted 190 million, down 4% year-on-year, and representing though a whole-time record high with respect to the share of total revenues in the portfolio. The Q2 was marked by a combination of developments. On the one hand, demand for 200 mm CMOS technologies remain high, and the allocation of available capacities continued.
In particular, the continued ramp of X-FAB popular 180 nm automotive technology at X-FAB France contributed to the automotive growth in the Q2, with revenues amounting to EUR 142 million, up 9% year-on-year. The Q2 CMOS business totaled EUR 166 million, down 8% compared to the same quarter last year, and the decline reflects the demand weakness for 150 mm CMOS technologies, following expected inventory corrections in the industrial end markets. As anticipated, silicon carbide revenue for the Q2 declined by 33% year-on-year to EUR 11.6 million, after the low bookings in the Q1. The current weakness is projected to bottom out in the Q3. Based on customer feedback, a recovery is anticipated to begin in the Q4, with a return to robust growth in 2025.
Both a weakness in 150 mm, as well as the silicon carbide, impacted the industrial business revenue, which recorded EUR 34 million in the Q2, down 33% year-on-year. Order intake for the 150 mm CMOS technologies started to recover in the Q2 and will be contributing positively to revenue evolution in the Q4. X-FAB Microsystems business recorded a revenue of EUR 25 million in the Q2, with a strong growth of 21% year-on-year. This was mainly driven by the ramp of next-generation automotive headlamp applications. Medical revenues came in at EUR 13 million, down 18% year-on-year. Apart from normal fluctuations, the decline is temporarily affected. The temporary effect relates to the need to allocate CMOS capacities.
Going forward, medical revenue is expected to return to solid growth based on new design wins, high demand applications, as well as strong medical bookings in the Q2. Overall, X-FAB recorded strong quarterly bookings amounting to EUR 248 million, up 12% year-on-year. This reflects the robust demand for 200 mm CMOS and Microsystems technologies, as well as an uptick in the 150 mm CMOS demand. The latter primarily related to industrial and medical end markets. Backlog at the end of the Q2 came in at EUR 270 million, compared to EUR 220 million at the Q1. Quarterly prototyping revenues totaled EUR 21 million, down 24% year-on-year, mainly influenced by the silicon carbide activity, where also engineering and production-safe launch were at, on the low side.
The revenue at the full year guidance mainly reflects the delayed recovery of the silicon carbide business. Despite the temporary effect, X-FAB remains confident in the long-term prospects of its silicon carbide business. Through the projected increase in EV sales long term, the greater adoption of silicon carbide in inverters, and the anticipated completion of customer destocking. The X-FAB expects a return to strong silicon carbide revenue in 2025. Business fundamentals are intact, and X-FAB remains well positioned for long-term business success. X-FAB comprehensive and highly specialized technology portfolio enables innovative solutions to address the major mega trends of our time. The electrification of everything is inevitable to move away from fossil fuels and mitigate climate change, driving long-term growth in X-FAB automotive and industrial business.
Aging and growing populations require technological innovations to make prevention, diagnosis, and treatment of diseases more efficient, reliable, and accessible to an ever-growing number of people. X-FAB Microsystems' expertise with a combination of CMOS and MEMS supports this development of world-leading medical applications and fuels the long-term growth of X-FAB medical business. Now, the capacity utilization. Let's move to the operations side. The capacity utilization of X-FAB factories varied by technology. 200 mm CMOS lines, especially those producing the high-demand 180 nm technologies, were running at full load, while the 150 mm CMOS fabs recorded lower utilization rates in line with the current demand. In the Q2, X-FAB continued its capacity expansion programs. The total capital expenditure for the Q2 amounted EUR 122 million.
The building construction at X-FAB Sarawak in Malaysia to create additional clean room space is on track, as is the plan to start moving in equipment in the Q4. X-FAB France continued to expand capacity with new equipment coming online. Both sites manufacture X-FAB popular 200 mm CMOS technologies, and it is essential to increase the capacity to better meet our customer demands. The silicon carbide capacity expansion at X-FAB Texas was slowed down in the Q2 in response to current market demand, reflecting X-FAB approach of gradually increasing capacity in line with identified demand and long-term customer commitments. There is still strong long-term interest in silicon carbide and corresponding capacity, however, there will be a shift in time. Now, I would like to pass the word to Alba for the financials.
Thank you, Rudi. Good evening, ladies and gentlemen. We will now move to the financial update. I would like to start this financial section by highlighting that the Q2 totalized $205.1 million sales, which was within the guidance of $200-210 million, and representing a decrease of 9% year-on-year and 4% quarter-on-quarter. The Q2 EBITDA was almost $48 million, with an EBITDA margin of 23.3%. If we exclude the positive impact from revenues recognized over time, the EBITDA margin of the Q2 would have been 22.7%, which was then at the higher end of the guided 20%-23%. Our profitability is not affected by exchange rate fluctuations, as our business continues to be naturally hedged.
At a constant US dollar, euro exchange rate of 1.09 per— as experienced in the previous year's quarter, the EBITDA margin would have been the same. Our cash and cash equivalent at the end of the Q2 remained strong and amounted to $290.1 million. The financing of our capital expenditure for all our ongoing capacity expansion program through 2025, is secured by our available cash reserves in combination with credit facilities, prepayments received from the customers with long-term agreements, and last but not least, operating cash flows, each of which accounting for approximately one-third of our total cash requirement.
For the additional capacity that we are building as part of our expansion program, the corresponding business has been identified, either as part of long-term agreement or as part of customer forecasts for existing products which are in high demand, which confirms that our good CapEx strategy is good. And now a more technical explanation. Based on the amendments to International Accounting Standards, IAS 1, regarding the classification of liabilities as current or non-current, we changed the presentation of the borrowings under our multicurrency revolving credit facility of EUR 200 million, which were classified as current until 31 December 2023. But as of January 1st , this year, we reclassified these obligations as non-current, and of course, we had to do it also retrospectively. Therefore, the balance sheets-...
As of June 30th, 2023, December 31st, 2023, has been restated to reflect this change, whereby the outstanding position under our EUR 200 million multicurrency revolving credit facility respectively amounted to $180.9 million and $192.7 million. They were both reclassified from current to non-current borrowings. To conclude this financial section, I would like to share our guidance for next quarter and give you an update on full year's perspective. For the Q3 2023, the outlook revenue is expected to come in within a range of $205 million-$215 million, with an EBITDA margin in the range of 24%-27%.
The guidance is based on an average exchange rate of 1.07 US dollar to euro and does not take into account the potential impact related to IFRS 15. In light of the still ongoing softening of demand, we adjusted our full year revenue guidance from $900-970 million to $860-880 million, which mainly reflects the overall delayed recovery of the silicon carbide power device market. With a slightly adjusted top end, the full year EBITDA guidance range has also been narrowed to 25%-28%. Analyzing the Q3 and full year guidance, you will notice that this implies a further strong growth in Q4 this year for both revenue and margin. Now I would like to give the word back to Rudi.
Thank you. The Q2 results were fully in line with the expectation, reflecting the contrasting market dynamics we are currently experiencing. We continue to see strong demand for our 200 mm CMOS technologies and in particular our 180 nm and the unique high voltage BCD on SOI. We continue this technology leadership with the 110-nanometer BCD on SOI that we released recently. The CMOS represents the largest part of our business, and therefore, we continue to invest in this unique technology and growing capacities in line with our customer needs that have been identified and secured through long-term contracts. I'm pleased that we have initiated these investments and continue to make good progress in the execution of our expansions. Another highlight is our microsystems business, where demand is strong and the pipeline is full of exciting applications.
While our SiC business is experiencing a period of customer destocking, I remain confident in the structurally strong demand for silicon carbide applications, driven by worldwide transition to green mobility and green energy. Our leadership in the silicon carbide foundry continues to create great interest by fabless power companies, automotive tier ones, and OEMs. It is rather a demand shift in the next years, and I'm confident that our SiC will also return to robust growth. With this, I would like to terminate the introduction and pass over to the moderator for questions- and- answers.
Thank you. If you'd like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. You'll be advised when to ask your question. We will take our first question from Robert Sanders, Deutsche Bank. Your line is open. Please go ahead.
Yeah. Hi, good evening. Maybe you could just start by giving me the loading by diameter, as usual. Sorry, your normal question.
Well, the loading by diameter, so on the 200 mm, we are fully loaded in the CMOS site, and that's also where our expansions are predominantly happening. In the 150 mm CMOS site, the loading has been rather low, somewhere in the 50%-60% range. However, this is gradually. I explained that we saw an uptick in 150 mm CMOS bookings, and so over the quarter, gradually that improved. So as I said, that should contribute positively in the revenue in the Q4 this year.
Great. And then, ST Micro on their call, was emphasizing the need to migrate production over to 300 mm. yet your customer, lead customer, Melexis, is stuck on 200. I was just wondering, what kind of cost advantage do you think could be gleaned by moving, to 300 mm wafers, let's say if Melexis produced chips at, STMicroelectronics' 300 mm fabs?
Well, the many of our customers have a lot of the products and a lot of designs. So like take for instance, Melexis, they've been producing 500 different products, and many of those products are running on average volumes. So it is not necessarily a big cost advantage to move to 300 mm for products that are not running in high volume. Yeah, so there's also a big cost associated to such transitions.
Got it. Thanks a lot.
We currently have no questions coming through. As a reminder, if you'd like to ask a question, please press star one now. We'll pause for just a quick moment to allow everyone an opportunity to signal for questions. We will take our next question from Trion Reid, Berenberg. Your line is open. Please go ahead.
Yes, thanks. Thanks for taking my question. A couple of questions, actually, just on the silicon carbide side. I mean, you said that you think the silicon carbide business will bottom in Q3 and then start to recover from Q4. I just wonder, could you give some indication of your visibility on this and why you think that recovery will start in Q4? I think in the last call, you sort of suggested it might start in Q3. And then my second question is just on your comment around the guidance cut, and that it mainly reflects silicon carbide. I just wondered if there was anything else you wanted to call out that it also reflects. Thanks.
No, the visibility on the silicon carbide is low for the time being. The expected recovery is based on forecast and signals from our customers. However, it's not yet tangible in orders, as we see it today. So far, we expect a further decrease in Q3, based on the orders and the wafer starts in Q2. Now the fab loading is relatively low, so new orders that come in come in with a better cycle time and so could still be executed and delivered in the Q4. However, the visibility is still low there on the silicon carbide.
Then your question on, yeah, how are the other things doing? So in general, all the, let's say, the correction of the guidance is, I would say, for three quarters related to the silicon carbide, poor visibility and shift up and correction in the inventories. And to 25.25 , I would say on the 0.35 micron, where we were planning to do additional volumes on outsourcing, where actually the demand does not require that, and the customers they are reluctant to qualify other sources, so we will predominantly produce in-house those quantities. And so that, that's another quarter of the correction.
Great. Very clear. Thank you.
We will take our next question from Emmanuel Matot at ODDO BHF. Your line is open. Please go ahead. You might want to unmute your line. Your line is open.
Yes.
Please go ahead.
Sorry. Sorry about that. Do you hear me now?
Yes.
Yes. Okay. Two questions for me, please. First, can you update us on your CapEx budget for this year? It should go down with some adjustments in Texas for your silicon carbide business. And second, I was just checking my model. CCC revenues are still going down quarter after quarter. Why? I saw the situation would stabilize, but it doesn't seem to be the case. Thank you.
The second question, you were referring to volumes of what? CCC?
CCC. Yes, sir.
Yeah, yeah, yeah. Okay. Thank you. Thank you. Yeah, with respect to the CapEx, so we were still planning to do around the EUR 550 million guidance that we gave for the full year, so that will not deviate too much. We indeed, we are reducing or shifting things on the silicon carbide, but there, that was not the majority of the CapEx was anyhow planned on the 200 mm CMOS. We are progressing well there, and well, for some critical projects where we're trying to pull in where possible, so we do not see a reason to adjust our full year CapEx spend. And then with respect to the CCC, yeah, so that's yeah, this is not in focus of the company.
This also is somewhat reflects a weaker demand on the RF SOI that we're still have some customers, which is somewhat lower than expected. But anyhow, it's not an area of focus, and so all our resources are focused on maximizing the output on 200 mm for our automotive customers right now.
Okay. Thank you for those comments.
As a final reminder, if you'd like to ask question, please press star one on your telephone keypad now. We'll pause for another quick moment to allow everyone an opportunity to signal for questions. There are no further questions on the line. Apologies, we have one more question on the line. We'll take our question from Robert Sanders, Deutsche Bank. Your line is open, please go ahead.
Yeah, can you just run through the cost inflation situation just by the different inputs, whether it's, you know, wafers, which presumably are getting cheaper, materials like gases, acids, chemicals, which are, you know, maybe a mixture of things, and the other key sort of elements, just so we can think about your profitability into next year. Thanks.
Well, those elements like energy, material, substrates, and so forth, there are some positive developments there. Therefore, yeah, this also has a positive impact on our overall profitability, despite the fact that we're running at lower volumes than anticipated. So, this does have a positive impact going all differently for 2024, and that should also help us with good profitability in the second half, where we expect a good recovery, where the volumes will go up. Cost structures might be a bit better than planned, and so that's— these are good things.
But what about wafers? I mean, silicon carbide, the Chinese are charging $500 now for 6-inch. Seems that number is going down pretty rapidly. You know, Siltronic has massive excess capacity in 6- and 8-inch. So presumably you can extract quite big concessions now.
Yeah, yeah. So that's—b ut on the silicon carbide, remember, while the market is on a low now, so we don't buy that many wafers right now. That's the first thing. And secondly, where possible, we work through consigned wafers, where also then the wafer substrate cost does not fall on X-FAB P&L. On all the other areas, yes, you're right. We will take advantage of possibilities of price negotiations where possible.
Just lastly, on the SmartSiC deal, it sounds like that's a consignment deal again, where you're not actually bearing any real kind of inventory risk. But are you developing, you know, PDKs and all of that sort of thing, to design to SmartSiC? I think one of the challenges SmartSiC has, is that companies want multiple silicon carbide suppliers, on mono silicon carbide. They don't want to be beholden to, Soitec. So, how much actual investment are you putting behind this, SmartSiC technology to, kind of evangelize the technology and get it going?
So we are indeed consignment agreement there. We have a handful of customers who are interested in testing, and we're launching the necessary tests and qualifications for them to qualify the benefits on their products with the SmartSiC.
Thanks a lot.
There are no further questions on the line, so I'll now hand you back to your host for closing remarks.
Thank you everyone for joining the call today, and, I'll hope to hear you back, on the 24th of October for the Q3 results. Good evening, everyone.
Thank you. Goodbye.
Thank you for joining today's call. You may now disconnect.