Good morning, and welcome, everyone. My name is Bernhard Schweizer, investor relations contact at INFICON. I have the pleasure to host the Microsoft online webcast of our live conference here in Zurich. Thank you for joining INFICON on its fourth quarter and full year 2023 results. With us today are Oliver Wyrsch, CEO of INFICON, and Matthias Tröndle, CFO of INFICON. The management team will first present the results and then take questions.
During the management's prepared remarks, online participants are kindly asked to turn their microphones and cameras off. You should have received by now a press release on the Q4 and full year results, together with the links to the accompanying visuals for this conference, the link to the annual report, and the invitations to the AGM. All these documents are available for download in the investor section of the INFICON website.
We are broadcasting this live conference via MS Teams. We just ask online participants to pose their questions either in writing using the chat function in MS Teams. We will read those questions out, and management will answer them during the Q&A session. Or you can add yourselves to the queue of people wishing to ask questions by clicking on the I raise my hand icon. The live audience, of course, here will be able to ask questions orally.
I would also like to inform you that we record this web conference to archive the audio file later on the INFICON website, and that we take a couple of pictures for our social media communication channels. The oral statements made by INFICON during this MS Teams session may contain forward-looking statements that do not relate solely to historical or current facts.
These forward-looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Having said all that, I would like to turn over now to Oliver Wyrsch. Oliver, please.
Thank you very much, Bernhard. Good morning, everyone. Really happy to have you all here. Welcome to our analyst media conference, Q4 2023. Let me click it. Quickly about our agenda, we have two parts, as always. First, I will talk about a couple of key messages, figures, 2023, and then about target markets, and a bit about the outlook, the market, and in the launch.
After me, Matthias Tröndle, our CFO, will take over and give you a few more details on the finance. Quickly about INFICON. Many of you know as well, as a brief recap, we're around for over 50 years, IPO in 2000. We started out with three core competencies. This is vacuum control products, measuring vacuum, the pressure, leak detection in all shapes and forms, and then more sophisticated sensors that understand gas and analyze the gas.
Based on this, we have further expanded continuously our capabilities internally and externally with acquisitions and organic organic. Based on this foundation you see here, we also developed in another direction. On one side, you see the big base historically has always been smart sensors. Many of these sensors that are more sophisticated use a lot of machine learning and data analytics, already for two decades, at least.
If you imagine one of the recent launches, you see it later in the presentation, where we create the plasma, and then there's some gas in there, and it changes the color. You need to translate that into a gas mix. It needs artificial intelligence, data analytics, depending on what kind of mix you use. We have many of these sensors in the smart sensors that we need relatively sophisticated analysis.
Based on this, for over 2 decades, we have also a software that aggregates all information around the tool and builds that together in a picture of what's happening inside of the tool. We take data from our sensors, from other sensors, from the tool, from pumps, and it will tell you the health of the vapor over time, also over several steps. And with the next thing here, this is something we do for 6-7 years.
We also aggregate all the data of all the tools, of all the sensors, and can tell you in a digital twin of the fab, how to optimize your fab regarding the schedule, the yield, cycle time, and so on. This is obviously something that is going through. On all different levels here, you see a lot of sophisticated data analytics or AI.
N ow I jump into the 2023 results. Strong growth in all end markets and all regions. Book-to-bill nearly 1. Record profitability. Margin impacted still by supply chain and broker costs. Some good improvements in the second half of 2023. The sales increased 16% year-on-year to $674 million with the growth across all regions and end markets, but in particular, growth in general vacuum and RAC of approximately 30% each.
Semi, we all know there was a bit of a down cycle, depending on the sub-segment of Semi last year. Semi, for us, developed stable with +2% year-on-year. Then you have Security and Energy. Our smallest segment showed very good growth, with nearly 50%+ year-on-year.
The order intake, as I mentioned, was stable throughout the year, with a bit ups and downs, but the book-to-bill close to 1 for the full year. Regarding operating results, we improved operating income to $135 million. It's a record high of 20%, and an increase of 21% year-on-year. Gross margin improved slightly, it recovered in particular in the second half.
The product cost reduced, but we are still impacted with some cost inflation, particularly in the first half of the year, and also some supply chain disruptions. And there is also quality issues from our suppliers, particularly for the more sophisticated products, but it has massively improved over the course of last year. Record high cash generation of $180 million operating cash flows.
We continue to invest in R&D and also in production costs. If you look at the regions worldwide, we see growth in all regions year-over-year, with a record quarter in Asia in Q4. All regions grew between 14%-18%, with an average of 16%.
If you look at the growth markets in general, how we see it, when we drill a little bit further down, you see one part semiconductor, that's just a few of our key segments that we work with separately or address in a separate product portfolio and separate channel. Leading logic, of course, in there, ICAPS, memory, to name a few. And then you see on the other side, all the high-tech industries where vacuum measurement and software is used.
Battery and auto, certainly interesting, particularly last year, also solar, but also HVAC, refrigeration, interesting segment, different gases and, security environment. I mentioned something about that already. I'll get back to this. So that's a few markets that we isolate and see good growth and interesting, growth rates, even, compared to, semiconductor.
Some of them are above, but many of them are also similar. So now we jump into our reported end markets. We start with semiconductor. Again, stable semiconductor sales in 2023. Good growth opportunities for sure, midterm and long term, and particularly in the second half of the year, we see a likely uptick when the semi-cycle comes back up.
Important to note, in most of the product segments or the most of the sub-segments, we are number one, with a strong position and also further expanding our position continuously. When you look at the sub-segments, memory was certainly the slowest segment last year. We all have seen that also for us. We see positive signals there, and we're optimistic for this year.
Most of the sub-markets, when we analyze them, we talk to our customers, and we are optimistic. But there is also, in Q1 in particular, still a bit of a mixed picture with many of how this will start out. We all think there's gonna be a big year in 2025, and somewhere in the back end of the year, a transition into this with an uptick. We do ongoing close development with our customers.
There's a good pipeline of prototyping, testing, designing wins, where we know we have a good feel of what is coming next in terms of our opportunities. I believe in pushing the envelope on many of our technologies, and I'm really optimistic when I look into the future. What you should also notice that because of the complexity of the nodes, more sophisticated sensorization is needed, and more sensors and more high-value sensors are generally used.
Plus, of course, there is still the semiconductor government-sponsored initiatives ongoing that adds an additional strong dynamic. I jump into the next segment, Automotive, Refrigeration, Air Conditioning. Strong position in the market, number one, with a strong growth last year of nearly 30%.
We are developing the market for battery further, but there's a few other markets in there that are also interesting in the HVAC refrigeration area. I mean, the most notable one is, of course, new mobility, EV transition, where traditional auto is slowing. This has continuously been growing. I would think this year, this is gonna go a little bit slower.
The growth is gonna be slower. It's still gonna be growth, but the adoption rate in the West has slowed down, and the consumption in China is a little bit down. There's still growth, but I would think this is a less growth potential for this year compared to last year. In addition, in there is HVAC and refrigeration, driven through new refrigeration regulation. So we need to support new sensor technology to identify these refrigerants. This is driven through sustainability regulations.
It's been an ongoing trend, and it combines a little bit also with the EV transition, where, of course, every EV needs also HR. On top of this, we have a service tools business, the handheld, the after-sales service, tools, which has been developing very nicely, also through geographical expansion and new product mix. Also here I see a strong R&D pipeline.
I see when we talk to the customer about their next generation of the products and that we are designed in there, and that there is gonna be a strong future growth. Jumping to the next market, general vacuum. This is the broad market for us. There's many different sub-segments in there, many of them I mentioned earlier. We address this through a multi-channel, multi-brand strategy and have a number of long-term partners in there. There's also private label in there.
We had growth in all regions last year, but especially in Asia and Americas. We believe we are number one full liner in terms of instrumentation for vacuum, and we remain in this position, and this has also shown last year, this resilience and how we could establish or expand our foothold in the market.
The expectation for this year is rather flat after really a tremendous growth the recent years, and in particular last year. One big driver in there was Asia or China. It opened up in beginning of the year, as you remember, and particularly in Q2, then really picked up speed, and we reduced a lot of the backlog. The supply chain normalized. There's a little of that dynamic in there for last year.
But this year we look cautiously optimistic also into the future, but we would not think that it's easy to repeat such a sales growth. Also, here we have a number of new partnerships, new channel partners that we developed, where we're quite optimistic that we can go and expand the market share. Last segment, security and energy.
Smaller segment, very strong growth in 2023 of nearly 50%. As you know, these markets are driven largely through government initiatives and new policies, so they have a bit their own dynamic, a bit outside of the other markets. And we have also launched a flagship product, new, as you know, the HAPSITE, which now allows to go into new sub-markets with new applications. This is still developing. Currently, this is actually still shipping the orders that came in for the traditional applications.
You also see that it is not entirely straight line growth. If you look at the different quarters, this is also where we had some supply chain issues with regarding availability and supplier quality. But we are optimistic for this year that this will continue. We expect here a growth for this segment as well. With this, I conclude on the end markets.
Quick note on sustainability. We're committed to sustainability. We follow a smart follower strategy. We have always our feelers out to understand what's next regarding regulations or what can you improve on your products. We work with our customers together to pilot the program, such as circularity and so on. There's a lot more of this information, obviously, gonna be public shortly with our annual report and the sustainability report.
M ost notably, progress is in the last 5 years, we reduced continuously the energy consumption per net sales, and we also reduced our CO2 to 500 tons recently, which is a very low number, we believe. We also worked on waste quite a bit, and have in various locations, different local initiatives, such as mobility and packaging and energy saving.
That brings me to the expectation for 2024. We expect a softer first half and growth in the second half. We have a solid order situation. There is uncertainty, there is risk. At the same time, we see also growth potential in select markets. And in particular, of course, in the second half, we expect semiconductor upswing. That gives us a guidance of $650 billion-$700 billion, with an operating income around 20%.
Just 2, 3 more pictures about us. A couple of product highlights, so you see a bit more what we're doing. You have product launches, leading-edge product launches in all the different competencies. You see, most notably, the reference gauge here, where we won the R&D 100 Award. It's a scientific reference gauge for people to calibrate with.
Then you see, smart manufacturing down here, combined with sustainability, optimizing your plant. We go into new segments with this, combustion gas analyzer handheld, or you see here, what I mentioned earlier, this AI smart sensor that creates its own plasma and then looks at the color. It's a bit like northern lights, but you do this inside a vacuum chamber. Around battery, this is the next generation product. We know that this is what our customer wants.
We're launching this, or we launched this with our OEM customers, so more smart software to optimize precision and speed. And of course, also gauge, traditional gauge business, the new Trigon, a really, exciting new generation. To give you a few, last, but not least, display is still also a business that we're interested in. It comes in cycles.
We have something here developed with these smart sensors, and these crystals that nobody has, where you can measure magnesium, which has always been one of the hardest problems to fulfill in the realm of OLED. Then here are a few pictures. I invite you all to follow our social media. We try to be up to date there and give you a glimpse of what's going on with us.
Don't want to go through all of this, but most notably, we're very proud to have received the TSMC recognition for production support and sustainability last year. With this, I conclude my part. I would like to hand over to our CFO, Matthias Tröndle, for more details on the financials.
Thank you, Oliver. Good morning from my side, and welcome to this new location. Probably after more than 20 years, a different location, always 2,000 from Rüden. I just confirmed with Bernhard, and also since IPO, we have been in the other location. Now, we are in new location, and hopefully this is a good event and a good sign.
W elcome from my side. I cover the Q4, as usual, the fiscal year results, the dividend proposal, and as well, the 2024 expectations. First, let me start with the highlights for Q4. The book-to-bill ratio for Q4 was below one, but orders improved compared to previous quarter three. Our sales did grow by 9.5% to $174.5 million and reached a new record.
The gross margin improved and gained 0.5 percentage points, and we achieved an operating income of $38.2 million and 21.9% of sales, our best result so far. From a balance sheet point of view, CapEx have been somewhat lower than last year. Cash flow and net cash made a big jump in Q4, and our equity ratio shows a solid and slightly improved 65%. We take a look to the full year. I can say, I, yeah, I believe, or I know it's a record year in terms of sales, operating income, and cash flow. CapEx ended, ended lower, and in 2022, as you might know, we had a very high spend. Sorry, I lost the course. Okay.
Talking sustainability, Oliver mentioned already a few points, but I think we can say our CO2 emissions have been reduced again. I think it's a third time in a row where we could reduce in absolute values, not as a percent, but really in absolute values, which is, I believe, a good, good step forward.
We have now 100% certified energy, green electricity in our main factories, and what is also important, I believe, it's that we could attract more than 90 new people as our employees. Now, let me go a little bit more into detail of Q4. As mentioned in this morning's press release, and I just mentioned earlier, we had revenues of $174.5 million in Q4, an increase of 9.5%.
Taking into account the small foreign currency impact, we achieved organic growth of 8.3%. Oliver did already comment on the development of the different end markets. I think we can point out that two markets showed a very strong growth in Q4. General vacuum expanded by 35%, and refrigeration, air conditioning, and automotive did grow by 13%.
Semi-insulating coating developed nearly stable with -2%, but recovered from previous quarter levels and did grow by 16% versus previous quarter. Security and energy dropped by 6%. With that, the fourth quarter was at record high level of $174 million. The regional distribution, which you can also see here, shows that we had growth in all regions. The highest growth was in Asia, with 18%, and Europe showed a +3%, and North America gained 1%.
The gross profit margin increased by 12% in absolute numbers and reached 46.7% in Q4, up 54 basis points compared to last year, Q4, and also higher by 32 basis points compared to previous quarter. This represents the best gross margin level since Q1 2022. The positive impact of higher volume, lower trading duties, and also lower broker cost, was only partially compensated for by higher material prices in certain areas and some inventory-related cost adjustments.
What happened to the operational costs? We spent $11.4 million on R&D in Q4, a slight increase of 2.6%, while we had some unfavorable foreign currency impacts. The SG&A, the cost level did increase to $31.8 million or 14%.
Personnel expenses due to increased headcounts, higher performance related compensation expense, and some costs for initiatives in IT, and service, and big digitalization and other areas are here, the main drivers. The operating profit for the fourth quarter was $38.2 million or 21.9% of sales, after $33.9 million in last year's Q4. This corresponds to an increase of 12.7%. The income tax expense for the first quarter was at $3.1 million, which represents a tax rate of 8.8%, comparable to 8.8% in last year. The net profit therefore did grow by 9.8% in Q4 and reached $32.5 million or 18.6%. Let's move to the balance sheet.
Our net cash reached $44.4 million, which is about $42 million higher than end of last year and $28 million higher than end of third quarter. The trends for inventory decreased slightly to 2.4, and the DSO ratio ended 51.6 days, a better level compared to Q4 last year and also previous quarter. Our working capital reached $225 million or 32.3% of sales, a slightly better ratio than last year and, and last quarter. The operating cash flow, which you can see on the, on the right side here, developed very well. It improved clearly and reached $38.9 million, the best level ever, and the balance sheet shows a solid structure with 65% equity ratio.
T hose were the comments on the balance sheet and Q4 results. Now let me quickly discuss the full year results. Revenue for the full year reached $673.7 million, after $581.3 million in previous year, which corresponds to an increase of 15.9%. As you can see on the chart, and as Oliver mentioned, we were able to grow in all end markets and in all regions. Asia, our largest region, did grow by 18%, reaching $326 million, or about 48% of our global sales. This increase was mainly driven by strong sales in general vacuum market and RAC market.
North America did increase by 14%, with strong growth in security and energy, especially after we had a really successful year in terms of capsule shipments and in general vacuum and RAC. Europe, it grew by 15%. Here, all markets did grow. The strongest one was RAC market. The gross profit margin is reached for the full year, 46%, showing a minor increase of 8 basis points compared to the previous year.
The second half of last year did improve yearly versus the first half, and the improvement was about 1.1 percentage points, thanks to lower volume and also to higher volume and lower broker costs. Turning to the costs, we spent $48.5 million on R&D for the full year, an increase of 6.6%.
The increase was influenced by unfavorable foreign currency impacts, while our development efforts still continued to be high. In SG&A costs did increase by close to 15%. Here, as in Q4, personal expenses and interest accounts and higher performance-related compensation expense have been the main drivers. The operating profit therefore reached record high $135.2 million or 20.1% of sales, after $111.6 million in previous year, a +21.1%. Year-on-year, the tax expense increased by approximately 25%. Tax rate is at 17.9%, comparable to 17.2% last year, and as a result, the net profit reached $105.7 million or 15.7%, which compares to 15.2% last year.
Now, also here, a quick view on some balance sheet data. Cash flow for the full year increased to $118.3 million or 17.6% of sales, from $45.7 million in the previous year. Here, the higher net income had, of course, some positive impact, while the working capital did grow only moderately. The capital expenditures were at $25.2 million last year, after the record level in 2022 of $35 million, and the working capital and equity ratio I already commented. So now let me go quickly to the outlook.
Oliver shared already the view, and we based on the order situation and the expected upturn in second half in the semi market and the business momentum in the other end markets, we are mostly optimistic for the current year, and we expect sales between $60 million and $700 million and an operating income margin of about 20% for the current year.
Now, let's go to the dividend. In the last two to three years, as you know, we have invested significant amounts in additional capacity to support our growth, and we are working the next expansion needs, required investments, and growth opportunities. Due to that, the board has decided to propose to the shareholder at the AGM on April fourth distribution of 20 CHF.
This is an 11% increase and represents approximately 53% payout. Also means we will return about $56 million back to our shareholders. The payout will take place April tenth. With that, I would like to close the presentation, and we are now ready to your questions, for your questions.
As we have well over 60 people joining in the online webcast, I would like to start with a question that Marie Gandolf sent. And it reads... Oops, now it's just disappeared. There it is. "Could you give a little bit more color about the logic behind the acquisition of FabTime and its link with all your existing software offering around FabGuard? Is this software tailored for the semiconductor production, or can it also be used in other industries? Is it complementing your existing customers, or does it open doors to new ones?
Thank you. Who asked the question?
Marie Gamval.
Okay. Thank you very much, Marie. Yeah, good question. I'm glad that you talked about FabTime. So obviously, as I mentioned earlier, we try inorganically also to find interesting technologies that we add and then translate throughout the world through our close customer interactions. This is an example of this. We found a company that has some true substance around cycle time management in semiconductor fabs.
It's something that we don't have in this shape or form, that's truly the experts, these guys. We will be closely integrated. It's relatively compatible already with the current platform that we do, and believe relatively quickly, we can then bring it to new customers. But they also have a few customers that we didn't have in that shape or form or that penetration yet, so it's energetic also on that side.
It's generally focused at the semiconductor fabs, but we always look with our software solutions that we see other things, other applications outside of the semiconductor industry. Of course, some of this software is so sophisticated and so specific to the semiconductor fab, that it will need some translation and some adaptation, and truly, it's, it's really used mostly in the semiconductor fab to that degree of detail. I hope the answer like this the question that we have.
Thank you. There's one more question from Christian Braun, from Finanz und Wirtschaft, and his question concerns production capacity in Semi. You had bottlenecks in 2021 and 2022, and therefore you have added new capacity since. Do you now have sufficient capacity for the new semi cycle, or are new bottlenecks to be feared?
All right. Thank you, Christian, for this question. Certainly, I think one of the key things, and I think about the future, I don't think so much about maybe the next quarter or two, but rather how do we capture the next upcycle in the semiconductor, which is, of course, Q3, Q4 this year and particularly next year. No, we don't have enough yet, but we're definitely planning on further expanding. We have, though, significantly increased the recent years, right?
W e probably don't need a step like that. We did grow tremendously as well, same time, so when we now project for the future and talk with our customers on the next cycle, their requirements, we will continue to invest in the usual CapEx range also for this year.
Yeah, for the room, a question out from the room. Yes, please.
Can you make some comments around the, the different dynamics in semiconductor, in fab optimization products and, and the equipment that goes directly to the, to the, equipment manufacturers? What are you seeing there, right now? And I would expect a different dynamics in the two sectors, right?
Yeah. As you, as some of you might know, we have about 50%, 50%, of our business in Semi going to OEMs or going directly to chip makers. Chip makers, TSMC, Samsung, Intel, such ones. And then, OEMs would be Applied, Lam, KLA, and such. So, software, we suggest also sophisticated smart sensors. We often supply directly to the chip makers, because in the end, when they want to optimize the recipe in R&D or on the production floor, they don't buy this through the tool maker. They typically buy directly from us. So it's true that the time- there's a time lag between the two, typically when there's a CapEx investment.
OEMs would rather be gauges and long-term design in sensors, whereas the other ones are more application-specific or process-specific, and even if there's an incursion, they would add additional sensors. Right now, what we see... Yeah, you know, you almost have to break down even the two segments. So in the OEMs, this is things that are public. ASML and Applied, big growth here last year, particularly ASML, a little bit more flatter this year.
The dynamic there is some of China, specifically for ASML, a lot of EUV tools, maybe some hoarding, I guess. So there's a bit flatter there. When you look at others, specifically the ones that are more focused on memory, they had a down year last year, and they're coming back. We see the right signs in pricing and inventories that it's gonna happen.
How soon will this happen? This is still a question. It will happen, and it should. In the second half, that's what we all said. Roughly, if you look at the chip makers, if you look at the big ones, Samsung invested through the period, maybe also to go and push on the leading edge some.
TSMC reduced a little bit, but we have the opportunity also to offer our sensors when they have incursions or instabilities in their processes, to help them even in years where they have less CapEx. And then Intel has its own dynamic, and I believe this year will probably come back with more investments, as it has done last year. Then you have the mature edge. There's quite some software and simple sensors going into this segment. This is automotive ICAPS type chip makers.
This is, would be NXP, TI, STM. I believe they had good growth last year, 5%-10%, something like that, somewhere flat, but there's rather a little bit of slowdown for this year in this segment. I believe overall we'll still have growth, but this segment, this is gonna be a little bit slower. So I hope this answers the question. I tried to paint the bigger picture.
Yeah. There is another question relating to software and semi. Felix Gode would like to know if there is a revenue figure that you can share with us regarding the software business. How much revenue do we generate with software?
Yeah. So we obviously don't publicize a number, but you can think this business about being 5%-10% of our revenue. It's fluctuating as well. It has its own cycles. I just mentioned the material. It has a lot of business in that area as well. You get out of the existing fab, more output just with software, without CapEx, it's the logic there. But it also goes in leading-edge fabs. Sustainability is a big topic.
Optimizing processes is good for sustainability. What I mentioned just now, the 5%-10% is software only, if you wanna call it like that. Obviously, all these smart sensors, specifically the ones with this AI, crunch a lot of data, and they do it on the chip itself.
Many of them have their own IPC, their own fast chip right on the sensor, and obviously, this software is outside of that, is on top of that.
Yes, please.
Yes, two—just two quick questions, product related. You mentioned ICAPS, mature edge, and also the memory plays, of course, that might recover towards the end of the year. Big topic, in my opinion, is high bandwidth memory, particularly, I, I would say, SK Hynix or Micron also, and I think you've made some inroads with Micron some time ago. So I was just wondering if you can give a little bit of a view on what role INFICON will play in that high bandwidth memory area.
Mm-hmm.
The second question is a bit more related to HVAC. You mentioned some regulatory changes there. I was just wondering, how does the move from A3L to A2L refrigerants support your sensor technologies in that business? Yeah, just these two.
Good question. So, yeah, high bandwidth memory, this is part of the AI hype or the I- AI dynamic right now. I mentioned, often when, when I was asked about, I'm a computer scientist originally, I studied here in Zurich, and we did the machine learning at the time as well.
The nodes were just 50, and now billions and billions, but the math hasn't necessarily changed, but the hardware did, right? And you also see when there's a gold rush, you best be the guy that sells the shovels. So that's what we see with Nvidia, I guess. No, no doubt there's been progress, and we also are part of this. I don't know if it's gonna be a big leap, where, where it's really a paradigm change. I see it as a continuum that accelerates. So how do I explain all this?
Same with the hardware there, right? Of course, these memory chip makers are focusing now on this AI opportunity. You need more memory, fast memory, more integrated system on the chip. These trends have been around, they're intensified and certainly get a big boost. But we have been actually working on this type of technology already for a while with them.
You need to remember, we normally look three to five years ahead with our customers. That's my aspiration also for us, our company, that we would also talk at least about the next design events, but rather about the future beyond that. Ideally, a little bit of a mix. And there, these topics have been there already. So each one of the mentioned ones are customers of ours.
Just recently, I'd say, maybe the last 3-7 years, memory customers started to be more interested in sophisticated sensors. They always had the more simpler one, pressure sensor, for sure, but now they get more interested in very complex sensors, right? Where you have big stacks, and you drill down selective edge, or you need to understand your platform much better, or you want to add more sensors also, the one I showed today, plasma sensor, cell plasma gas analyzer, where you add more sensors across. So this has been an ongoing dynamic. I hope this helps with the explanation. Thanks.
Then the second part on the HVAC regulations, yeah, I think, this has been one of the drivers for a couple of years already, but really last year there was a lot of dynamic in this, and you see it in our HVAC, RSE auto numbers. There is a lot more interest in measuring new refrigerants, faster difference, more automation. So this business has shown much more dynamic than we expected last year, also at the beginning. And again, it's together in combination with the EV transition. It's often a big one cluster, right?
Yeah.
This is similar, suppliers that work together, and our teams are also working rather closely together. Hope this helps.
Thanks.
Very good. Yes, please.
2 questions. You mentioned the book-to-bill ratio was below 1 in Q4. I was wondering by how much? And the second question is on general vacuum. I mean, that has been one of the very positive surprise.
Yeah
... in 2023, to be honest. Also, given the macroeconomic picture we hear from other companies, you mentioned a flat market outlook, but how do you explain this? Acceleration pros and now this resilience on this high level looking into 2024 in this general technology.
Do you expect it to be slow this year?
Yes.
Would you-
Actually, to decline.
Okay. Yeah, it's a good question. So maybe in flat, you have a little bit plus, a little bit minus. Honestly, it, it's hard to say. Why is it hard to say? We work through so many different channels and so many different channel partners, and often we don't know the end customer exactly, right? So we, we know as much as this channel tells us, so it's not always 100% easy for us to say.
We of course have estimates and discussions about how is this year gonna go. When you aggregate this, this is where we land. And why it was last year so fast was maybe a question. So, so the big thing was, zero COVID stop opening up in Q2. There was a massive dynamic in this high-tech sectors, specifically the semis, one, one in, in China. That helped us.
The supply chain helped us. Q2, Q3 had really a lot of dynamic. Last year was also a solar year. We, we have this segment also in semicon. We also see other similar companies had similar dynamic to solar, which is also China. This year, there's a number of uncertainties specifically regarding China, but also regarding macro across all regions. But overall, we see mostly optimistic, right?
There's rather a flat plus dynamic in if you look at the general macro dynamics, in spite of all the difficult, maybe structurally in China, or also a slower Europe or a Germany that struggles and. But all in all, it's we can cautiously be optimistic. Now, one more question you asked in the beginning, the book-to-bill of Q1, Q4, I think was close to one.
Maybe the CFO can give a little bit more. It was not below 1 point.
Not good.
All right. There you go. So it's, this is a close number. Please, who's next? Yeah.
Yeah.
So, yeah.
Maybe 2 or 3 questions from my side. The first one, you have accelerated the software offering significantly, I think, over the last 3-5 years. Do you see actually customers to specifically ask, "Okay, look, I don't only want to have your components and sensors, I want to have your software, that you provide more and more solutions." If you can tell us maybe the broad revenue run rate you have today, and we have these system sales versus maybe 3-4 years ago, that we had a little better feeling for the growth trajectory would be the first question. Do one by one.
We do it one by one?
All right.
Yeah, software has a different sales dynamic. We typically talk to different people on the customer side. It's more fab managers, operations managers, IT managers. It takes typically longer because you go and upgrade a whole fab, you need to plug it into the MES and the ERP. And sometimes there's other rollouts over several fabs and over several product modules. You need to think of our software offerings as product families with a lot of sub-modules, so they pick and choose and build into their landscape, over time. So the cycle for selling to a new customer, that can be 2-3 years.
But when you then get the momentum, then you are in this pace where you add all the time, either another fab or more modules, and then it runs over time, and it starts with NRE. So meaning you need to configure it, and then you need to plug it into all the system.
This needs interfaces and configuration. It often needs also data cleanup because we then truly use the data. And then, for steering the scheduling of the reports and whatever. And then over time, this will translate into subscriptions. So I would say the big year was really last year when a lot of the ICAPS, the automotive chip makers, didn't have enough capacity still.
Maybe you could even go two years back, I should probably say, 2022, and they really got a big interest in our software solutions through that. And then we could relatively fast gain a lot of market share, particularly in Europe. In U.S., we are relatively proliferated already, and I think Asia is a bit more complicated for us. And so we... Japan is a market with a lot of legacy or mature fabs. That's certainly an interesting market. The others are a bit more complicated. China is less a software market. I think they're not there yet, and it's also a bit more tricky with the technology protection. That help-
Yeah.
-with the question?
The second and third question, more technical. The second one is on capacity expansion, because you were really suffering from this in 2021, not having enough capacity.
We wasn't.
I mean, you also said CapEx remain relatively flat in 2024, if I understood you correctly. So how are you adding capacity? Where are you adding capacity, and what is the total sales capacity you will have till maybe end of 2024?
Right. Again, I don't think we have precise answers to all of this. We kind of work this out still with the customers, when and how, how much. But we think with the program that we will run this year, which should be a similar kind of CapEx rate around the 30s, I would think, right, that's what we modeled, and, and, that we then will be ready for the next semi-up cycle, meaning 2025, 2026, something like that.
That's now starting the second half of this year. With a little bit extra, right? But it's always important with the semi cycles, you don't scope it for being able to do the peaks, you need to go over the peaks. So, so you can go through this, very volatile, yeah, dynamics. Then there's also supply chain issues.
There's inventory, you normally get a little bit through the grinder there. So we think we can do this with a usual size of CapEx. That's what we currently plan.
The last question, if I may. The cash flow was very strong in 2023. I mean, is this the normal conversion rate we should think of, of EBIT, or is it 70% or so on the equity cash flow? Is what we expect 2024, 2025?
I think, I think 2022 was terrible.
Yeah.
Number one, because we had $55 million inventory increase in the last year. We had huge working capital increase, and this it really impact our cash balances, among a few other things. And now in 2023, what really happened was we had a record result in terms of net income, which is one of the key drivers in cash flow, and we only had a very moderate increase in inventory. This was the key, right? Why we achieved $180 million, because net income was around $100 million, right? Plus a few other items, and this worked.
So in situations, right, to come back to your question, in situations where you don't have these huge swings, right, in inventory and or in other areas in the balance sheet, like could be accounts receivables, or maybe if there would be a dramatic change in payment behavior, right?d
This would also be of impact to accounts receivables and then impact the cash flow, but I don't assume. So I still believe DSO will be okay and under control, and no surprise. Under normal situation, I can confirm, yes, this should be possible to be repeatable, right? It's mainly based on that income, and if we are able to manage the balance sheet, then we should be able to generate good cash flows, right? And yeah, that's...
So if you add both together, 2022 and 2023, you have a, you have also a good number, right, in average, because 2022 was very extraordinary. It's, this inventory increase was crazy.
Okay. Thank you.
Thank you.
No questions?
Yeah, maybe following up to the CapEx plans or the expansion that you announced. Is there also OpEx involved in there, like additional?
Yeah. Yeah, OpEx is different components, right? R&D maybe might be one component, SG&A. So maybe a word about each one. R&D for us is a long-term thing. So we look maybe at 10 core technologies that we really want to be at the forefront, push, push the envelope.
There, the guidance always has been, at INFICON, if you find a fantastic scientist, hire this person. And we want to go and continue this, and we have been continuing it. But I show you this little anecdote is that this is almost independent of what we do quarter by quarter, right? So you have a fluctuation of percentage of sales for the R&D, but in general, the idea is still be leading edge in this top technologies, work together very closely with the customer, and push it forward.
For me, frankly, the R&D could also be a little bit higher, right? But we grew a lot in recent years, so this is just not a thing that we directly connect. On the other hand, if you look at SG&A, we're trying very hard to be lean, have a small overhead. You can see that how we interact also with you. We try to put everything in R&D that we can. In SG&A is though also another important part.
Sales team for us is not a lot of salespeople. Yes, there's key accounts, there is, of course, a little bit for the diffuse market, but the key part in there is actually application engineers. What is an application engineer? Application engineer normally lives next to a customer. They go every day to lunch with the customer.
They have a batch. They work in there and optimize our product with the customer, either in R&D for the next generation or on the production floor. So we have people in Korea or in Taiwan or Oregon or wherever that might be, that work like this. And that's a relatively large group. I think we even publish it in the sustainability report. A total is 400+, with the application engineers around 150.
So it's a relatively large group. And then, the other next largest group is actually service technicians, right, working together with the customer. So I explained that. We make, of course, investments there. Application engineer is also a part of innovation and a part of customer satisfaction, is part of the customer proximity.
I believe our very unique intimacy with the customer comes largely through this application engineers. So we'll continue to invest there, too, right? Depending on-
Maybe I can add, because I also mentioned this in my comments. Of course, we also have some of these initiatives started last year, especially digitalization, IT, security. We just opened this Guangzhou Application Center, right in China, where we invest a little bit more into press release in generally about Malaysia, right? So there will be some extra cost on top, but not huge amounts, I would say. But there are also some of these initiatives will drive a little bit the expense up.
Yeah, also this innovation center in Taiwan, this is always a blend between R&D and application engineers. Yeah.
Just maybe a quick follow-up actually on that one. When I just try to understand it with your guidance better, if I, if I take the midpoint and what you say, it's more or less the same year as last year, which is already pretty good, of course. But I would assume that on the gross profit margin, you're probably still not really happy with that number, so I would assume you're pushing to bring that up this year, and maybe SG&A also up.
Is that the way I have to understand to calculate to get to your 20% EBIT margin? Because I think there must be some changes, otherwise you would... If you have an increase in your gross profit margin, which I would anticipate, and SG&A stable or going with the revenue development, you should have a higher EBIT margin.
I would say roughly, yes, but maybe CFO can give a little more.
CFO also says roughly, guys. I think it's good approach, but not to be serious. I think there are in both lines, right? Whether it's OpEx or whether it's gross margins, there are always, there's always a bandwidth in that, right?
Mm.
Depending on customer mix, on still the old story, the product mix and the markets we serve, right, there are really huge differences. Earlier, we talked about software business. Software business, we do 80% gross margin, right? And not trendy with other products. And so it's also there. There is a bandwidth of maybe ±1 percentage point, right? And the same is valid for SG&A, right? I just said, right, IT, digitalization, we spend a hell of money in security aspects, right? Last year, and we will continue to do this, right? And we have other ideas, right, and other needs we need to do, which are on the plus side.
On the minus side, in terms of CFO thinking is, and I, as I explained earlier, we spend a lot in variable compensation last year because we had a very good year, so this will also normalize. Do we believe with the normalization of the variable compensation and some of these investments, we should see not a huge increase in SG&A, but as usual, right, we say we pay as you go.
As a principle, we take it very often, and we look what's going on the next 3, 6, 9 months. Do we have strategic investments? Do we have maybe good people which we can hire, right? Then it's a really strategic investment for us, and we do it, right?
Regardless of whether Q1 is good or at 10% or 5% increase, whatever, right, then this is a different decision.
Maybe just to, most of you have probably heard these answers already, but just to make sure. Gross margin, I always try to suggest that you'd rather look at our EBIT, why? We have products that go from 40% gross margin to 80%, almost 90%. Now, when you have this many submarkets, right, 20-30 submarkets, each one has a different dynamic, and they feed a little bit into different product margins. It's not a good indicator of how healthy INFICON is if you look at the gross margin. But our aspiration is EBIT targets they all have, the sub business, and we try to push that. And I believe you see some good positive indicators there.
But again, we will always go with this strategy, and we luckily, with our investors in this position, that this is also supported, we will invest in the long term. So if this super brilliant scientist comes along, we hire this person. If we have a digitalization thing, we do that. So this will go and further skew your numbers over the quarters. But again, the gross margin from 40%-80%, that is a big mix problem there, right? So last year, there was also good business with gauges. Gauge business has been growing the last 3-4 years tremendously.
It's an OEM business, very little SG&A sales channel cost, but goes really fast as soon as you design in and then it runs, and it scales up with the customer, the tool makers, for instance. Hope this helps.
Yeah, sure.
So who's next? Is it okay, Jürgen, we flip around a little bit. We have somebody in the back.
From Octavian. My first question, you mentioned there are quite some interesting products in the pipeline. Products, could you maybe explain a little more the new generations or maybe addressing some new sub-segments or same area that we haven't really solved?
Yeah. Okay. Yeah, so, so, the both, actually, is the short answer to this. So I tried with this launch highlight slide to show you a few examples of the things we launched. Obviously, there's a lot of incremental upgrades, a lot of software releases also that we have for all of our products and for the software products.
Right now, honestly, in the segments that we are, we see midterm fantastic organic growth opportunities. So this is a lot about addressing the next challenge, right? The next techno, what is that? Yeah, the smallest structure, harsher chemistries. There's different requirements also a little bit further away from the front end, in the back end, or if you look in the fab, in the sub-fab. So in that cluster-... there is actually a lot of opportunities.
There are pockets $4 million up to maybe $10-$20 million, which we try to address, and that is often a variant of a current, current product, be it software or a little bit of a hardware variant. At the same time, we do like to look bigger. That's why I showed this other slide of this other technology markets.
We try, INFICON, I think, has always done that. I, I, I try to move the team forward in that direction and maybe get a little bit more steam into this, to look into the other segments outside of semi, too, or maybe in semi also a little bit, the ones that are further away from leading logic. And in there we see also a number of new opportunities, I think a few I mentioned earlier, if that helps.
We try to, in order to manage our complexity, right? The question sometimes comes is how can you be in so many applications, so many market segments, and still manage your complexity? Actually, what we're very regimented about is that the R&D is synergetic, and then the manufacturing is synergetic, and in the end, the translation happens with these application engineers. So the first part is very synergetic. That's why we can actually address relatively different market segments. I hope this helps to give some color. Yeah?
Then maybe also a question for Matthias. Your net working capital is still quite high. Could you maybe explain what were some of the reasons? Because you used to be at some point within 25, now I believe you mentioned it's around 32, based on your calculations. So could you maybe explain a bit the dynamic there?
Yeah. So in the 2025 working capital we reported last year, the majority is really inventory. And I believe AP and AR they are in good shape. Yeah, the DSO has only even improved a little bit, where we are we still have some homework to do, and where we have some issues is on the inventory side. We are working on reducing it to bring it back to a more appropriate, a more better level. Yeah, but you can see the turns are at 2.4. That's not necessarily the value we wanna keep, right? So this should improve over the course of the year. It's not easy always, but also inventory sometimes behave like a big ship, right, in the ocean.
You turn the steering, and it takes maybe 6, 9, 12 months until you really see any result. We had a little progress this year, but not the one we expect, and not the one we shoot for. So we are working on it, and we want to bring it down and wanna also increase, as a consequence, the inventory returns. That's our ambition.
Maybe, just to add a note there, this is our aspiration for sure. Two things are also important to us, and one is being able to deliver.
Yes.
Yeah, that does mean sometimes taking on inventory. Of course, you optimize the supply chain, but it is a bit that, too. And when you really boost innovation, and we have been picking up speed all the time, you add more product, you add more product variance. So to supply these-
Yeah
... the inventory rather grows than it shrinks. So we try to balance the different factors there, but to a balanced result in the end. But I would agree entirely, right? We're not 100% happy where we are with the terms right now. That could be improved. Björn?
Just a quick follow-up, and apologize my focus on the short term. Interesting to see that we are ahead of a big semi-end market recovery and also some semi-vacuum peers of you guide for weaker Q1 2024 versus Q4 2023. I mean, do you read anything in this, what do you hear from your sales team? Is this normal volatility, or do you really see that some customers are starting to say, "Look, let's be on the break until we really see CapEx investment of TSMC, Micron, TSMC, Micron sounds are coming, coming with this through?" Or is it something you should not really think much about?
Yeah, I think it's a number of factors, I would think. But also, there are many experts also in the room that know at least as much as I do about the general semi market, right?
But what do you hear from your salespeople?
Yeah, yeah. And so, so, I mean, first of all, don't forget the Q4, especially for some markets, and, and in particular for Asia this year, is, is a bit of a sugar rush, how much we ship, and then you have a little bit of a hangover in January, February.
We have some of our business that work like that, especially the chunky ones, where you deliver a whole set of pallets for a project somewhere, and then it needs to go out in a, in a certain quarter, particularly Q4 is always like that. That's one factor, but yeah, I think customers are a bit cautious. Maybe if you recall last year, we always thought in the second half of the year we have a semi upcycle. Sounds familiar, right? So we were all kind of, "Okay, when is this exactly coming?" It some stuff came.
For us also, Q4 was a big improvement over Q3, and Q3 was still quite slow, at least in that area. And then we have this China dynamic that overlays it. I think there's a certain amount of uncertainty when exactly this is gonna happen. I think Q1, when I read the different reports, talk to the customer, talk to my guys, it's a little bit the mixed picture of where we're gonna go. But that is really very short term, like you, like you, like you said. More questions? Anybody online or-
There are no further questions from the online community at that time, no.
I think we had almost 70 online right now, right? Well, in the 60s, yes. Well, in the 60s. Okay.
Can you talk a little bit for the security side? Have there been any more orders from the United States Department of Defense or so on? Has there been more development in that direction, and then also on your capacity to adding between higher sales in Q4? So what could be a runway for this year, these four months?
Yeah, and you kind of already answered, or gave many of the answers implicitly there, right? So, so yes, the orders continue from, military, especially the DOD. There's a tech refresh going on. There's different sub-projects, and yeah, the security situation globally is helping that business, as terrible as this, this fact is that we have such a, much more insecure world. We, we also have new applications there that we address.
Maybe an important thing to mention that only come over time. But then the actual quarter to quarter shipment rates is affected largely not by the capacity we have, the capacity to produce. We have the problem in the supply chain, specifically the supply chain quality, where we had a couple of stumbles, and that's why, for instance, Q4 was slower than Q3. This could have been higher.
We see growth for this year. Specifically, also, we believe that this on time was a bit better. We continuously improved supply chain, and also in that area, it's a bit more time lag to the other products regarding the easement of the difficulties. You also want to...? Good. Any more questions, or does everybody need to run to the next event? It's a busy day, right? Good. Then I will wrap up. Thanks, everybody, for the big interest in our company. I really, truly appreciate that, the support, the questions, the exchange. Thanks very much. See you soon. Have a wonderful day. Thank you.