Ladies and gentlemen, welcome to the u-blox nine months 2023 revenues conference call and live webcast. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen- only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rafael Duarte, Head of Investor Relations at u-blox. Please go ahead, sir.
Thank you, Alice, and welcome, everybody, also from my side. We don't typically hold conference calls for result releases, but we thought it would be a good idea this time. On slide two, you see our usual disclaimer, which I'm not gonna read aloud, but please take the time to read it by yourselves later. I hand over now to Stephan Zizala, our CEO, and look forward to your questions at the end of this brief presentation. Thank you.
Ladies and gentlemen, good afternoon, good morning. As Rafael mentioned, we have prepared a brief presentation in line with the content you already saw in today's press release. Let's start on slide three. Revenues for the first 9 months reached CHF 436 million, down from CHF 475 million one year earlier. In the third quarter, revenues were CHF 104 million, down from CHF 181 million in Q3 2022. The weaker Q3 was expected, as I mentioned during our last conference call in August. Mainly, the general overstocking at customers caused this decline in Q3. All regions and all markets, without an exception, saw a similar trend. This supports our view of an industry-wide overstocking following a phase of severe semiconductor shortage in 2022.
I consider this as a typical pattern in our industry, an overheated business followed by an overstocking and thereafter, a correction. Our view for the full year 2023, including the current guidance, remains unchanged. Please go to slide four. Beyond the short term, we continue shaping our future with innovative products. I'm really very happy to announce u-safe, our comprehensive solution for Level 3 and above autonomous driving. u-blox is the only supplier to offer functional safety, combining proprietary hardware with a customized software and a correction service. This end-to-end solution saves our customers development time, development cost, and reduces risks. With u-safe, we take u-blox's already established strong position in automotive one step forward towards autonomous driving. Let's go to slide five.
On industrial, I'm happy to announce a double-digit million US dollar design win in first orders for our brand new IoT module, combining cellular and satellite connectivity. This is an area where I'm particularly excited about, as it creates solutions which are completely new to the market. For example, for fleet management, transportation, and smart agricultural applications. In August, we just announced that we entered this market, therefore, it's great to see commercial success so early. We have also launched a very small cellular module, which adapts perfectly to small size demanding designs in industrial IoT. For example, for asset tracking and aftermarket telematics. This is it from my side, and I would use now the remainder of the time to jointly with Roland Jud, our CFO, to answer your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on the touch tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and one at this time. Our first question comes from the line of Harry Blaiklock with UBS. Please go ahead.
Good afternoon. Thanks for taking my question. The first one is just on the confidence you have in the Q4 recovery. Obviously, it's quite a big step up in growth even to hit the low end of full year guidance. So I was wondering, what are the main factors that are giving you confidence in that sharp recovery in Q4?
So, we see the following things happening in Q4. So, first of all, we see a significant volume increase, Q3 versus Q4, so it's volume driven, increased, and it's coming from broader segments of our business. And the other effect, what we also clearly have there is, as mentioned, we did last year quite a number of very beneficial long-term agreements. And of course, there are still some long-term agreements valid, which come in place in Q4.
Got it. And then in terms of the 40% or so decline in Q3, is that all volume-driven, or is there any pricing within that as well?
Sorry, I'm not sure if I understood the first part of your questions. You mean, is the decline Q2, Q3, mainly volume-driven or price-driven? Is this correct?
Yeah, correct. Or yeah,
Yeah.
Year-over-year decline in Q3.
Yes.
Yes.
Yes.
Yeah.
Very clearly volume-driven due to overstocking.
Got it. And then, I mean, clearly, within that decline, there have been some kind of push-outs of orders. Is it largely pushouts or some cancellations as well?
Well, it's honestly speaking, very difficult to differentiate if it's a pure pushout or if it's a cancellation. So as mentioned before, we see the main effect, an overstocking effect, nothing related directly to the long-term growth paths of the markets we are in. However, of course, there's one or the other customer, which has so much overstocking, so they just canceled instead of doing a pushout. But it's mainly overstocking related effect on the volume side.
Got it. Thank you, Stephan.
The next question comes from the line of Emrah Basic with Helvea. Please go ahead.
Yes, hi, good afternoon. I have two, three questions. Maybe the first one, a clarification one. When you say for Q3, that all markets and regions have a similar trend, do you mean that all markets and regions have declined by the same or more or less the same year-over-year percentage?
Yes, because we mentioned before that the main effect is an overstocking effect, and this we saw on a pretty wide scope.
Okay, thanks. Well, okay, perfect. Thanks. That clarifies a little bit more. So there is not more granularity that you could give, whether this market is experiencing more due to some specific reason or not?
Not in this specific case, because as mentioned, this was mainly overstocking-
Yep.
Uh, driven.
Okay.
Not to the basic markets beneath.
Thanks a lot. Could you update us a little bit if you have better visibility in terms of your net working capital and cash flow for by the end of the year? What are your expectations?
Yeah, I think it's best if Roland takes this.
Okay, cash flow, the expectation is, it's rather difficult to, to now predict what cash flow really does at the end, because, with that, I have to, to forecast how, how the, the revenue will come in. Is it more end or more at the beginning of, Q4, as well, all the, the inventory movements and payable movements. So working capital will here play quite, a big role in this regard, but overall, yes, we just for sure work on that we get, into the positive free cash flow side for the, for the full year.
All right. And I assume so... I mean, sorry to press on that one again, but looking at the net working capital, it's probably, probably mostly gonna be accounts receivable driven, I guess. For the first time.
Not only. It's accounts receivable and inventory driven, let's say, playing the highest role now.
Okay.
How does the inventory develop and how is accounts receivable causes, then when does the revenue come? If you do it all in the last month, of course, your accounts receivable go much more up than go up. In case you have it more spread over the months, it stays lower due to the payment terms. We have usually the 30 days.
Okay, thank you. Then the last one is also a more clarification one in terms of your design win in an industrial segment. Is this design win referring to your hybrid model, or is this a separate one? And because you said you mentioned also the new orders already coming in for the hybrid module.
Yeah, that, that's the specific one we mentioned here is this hybrid model for satellite and cellular communication. This is what made this-
The design win refers to that.
Yeah, yeah. Because that's, that's the, that's the big news here, because-
Okay, perfect
... there's a very quick turn, I would say.
Great. Thanks a lot.
The next question comes from the line of Torsten Sauter with Kepler Cheuvreux. Please go ahead.
Yes. Can you hear me? Good afternoon, gentlemen.
Yes.
I also have a couple of questions. First and foremost, what's your view of the channel now? I mean, have we seen really the end of the stocking as the guidance implies, or does it come in waves? I'm just looking at this chart with the quarterly sales performance, and I mean, you know, the question is, of course, could there be even more excess inventory in the chain? And how does your market intelligence work here, and what does it tell you?
So first of all, what you can see in this chart is a clear sign of an overheating market if we look backwards. That's the unpleasant thing, that you see this very clearly from hindsight, but usually not in the other direction. Yeah. So that's clear. On the other hand, I also can confirm our long-term growth trends are absolutely in place, so there's zero doubt that applications like the industrial Internet of Things or automated driving will come. And I hope we could make this very clear with our announcements of the design wins. We have... If you look in the Q4, we have pretty good visibility. Therefore, we told you exactly the development we see now, and this is mainly driven by a volume uptick combined with our long-term agreements. What we don't see is very clear is how 2024 will develop. There's no change to our last call in August.
Okay, understood. So we cannot take the implied Q4 quarterly sales performance as an indication for where the new run rate is for, you know, going into 2024?
As mentioned, I cannot comment on 2024 at this point in time, so there's no change versus the August point in time. I just can reaffirm the long-term growth drivers, the secular growth drivers, they're absolutely in place, and we see the design wins coming in as we need them.
Okay. Can I ask one more question maybe? Have you taken any measures to prepare the company for, you know, say, a rough ride? I mean, hiring freezes or some sort of OpEx measures, and can you specify a little maybe? Thank you.
Yes, of course, we took measures because indeed, that's the thing we should do, and we significantly reduced hiring. At the moment, we are very selective where we do replacements, and even more selective. I would even call it punctual where we do additions. And those we do only in areas where we see really a strong growth upcoming with a very clear business case. But yes, as this is one of our main levers, we are acting restrictive in this area. So yes, we have taken measures. On OpEx, of course, in addition too. Yeah.
Gentlemen, this was the last question. Back to you for closing remarks.
Thank you very much for everybody who participated in this call. As a reminder, next month, November 21st, we'll have our Capital Markets Day. Invitations will be sent soon, and we look forward to either seeing you personally or for your participation online to the event. Thank you.
Thank you for participating and especially for the questions.
Goodbye.