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Thank you for holding, and welcome everyone to the X-FAB quarterly conference call.
[Operator Instructions]
I will now turn the call over to CEO, Rudy De Winter. Mr. De Winter, please go ahead.
Good evening, everyone. Welcome to the second quarter report. In the past quarter, X-FAB recorded total revenues of $227 million up 20% year-on-year and up 9% quarter-on-quarter. A portion of the revenue, $8.3 million, to be precise is due to recognition of revenue over time, mainly related to long-term contracts with customers in accordance with IFRS 15 excluding these events, this affects quarterly revenues would have been $219 million and in line with the guided $205 million to $220 million. Alba will explain more about IFRS 15 later. X-FAB Core Markets, Automotive, Industrial, Medical accounted for $199 million, up 28% year-on-year. representing now a share of 91% of our revenues.
Demand remains strong and continued to exceed X-FAB available production capacity. Second quarter bookings came in at $221 million with a book-to-bill of about $1.01 billion. Backlog at the end of the second quarter amounted to $507 million, roughly as compared to previous quarter.
In the second quarter, X-FAB Automotive revenue set a record totaling $131 million. This represents a strong growth of 33% compared to the same quarter last year. The majority of this increase is mainly attributed to X-FAB France. The site significantly increased its wafer shipments in X-FAB Popular 18-nanometer automotive process and now produces 92% of its quarterly revenues based on X-FABTechnologies compared to 52% a year ago. The positive momentum from converting fab capacities to X-FAB Automotive Technologies is expected to continue in the coming quarters, helping to close the gap between supply and demand from customers. The electrification of mobility is a key growth driver for X-FAB Automotive business and demand for X-FAB specialty technologies for high-voltage CMOS as well as silicon carbide applications remains high.
Industrial revenues totaled $51 million in the second quarter, up 21% year-on-year. got comprehensive technology portfolio enables a wide range of industrial applications address addressing major global trends. Growth of ICAP Industrial business during the second quarter was primarily driven by strong demand for silicon carbide technologies.
The silicon carbide revenues in the second quarter were $17.3 million, up 36% year-on-year. The even stronger increase in silicon carbide wafer shipments, up by 103% year-on-year, is not fully reflected in the top line due to a higher portion of customers that source their own silicon carbide raw wafers and consign them to a X-FAB. This results in a lower total billing, but a better relative gross profit margin as the value added by cap remains unaffected. We shipped about 11,000 [ wafers ] in the second quarter and the onboarding of new projects and customers remain strong.
In the second quarter, X-FAB Medical business recorded a revenue of million, up 16% year-on-year with a strong contribution of ultrasound probe applications. We expect that the medical will continue to perform well for the rest of the year. In the second quarter, CCC revenues were $20 million, down 40% year-on-year, and this reflects the planned decline in CCC legacy business, which until recently was produced at X-FAB France. While X-FAB France is in the process of converting the freed-up capacity to Xos automotive technology.
The CCC revenues are now at a sustainable level and ICAP top line growth is no longer impacted by the decreasing legacy business. Prototyping revenues in the second quarter came in at 28 million, up 35% year-on-year and up 5% on -- so this shows customers continue to design in new products in our technologies, and it's a good indicator for continued future growth.
So let me walk you through the operations update. The capacity utilization of X-FAB remains high throughout the second quarter. All teams have been focused on ensuring smooth operations and increasing productivity and wafer output further. This gets supported by consistent clearing of production bottlenecks automation projects and execution of X-FAB capacity expansion programs, which continues to progress well and on schedule.
In the second quarter, capital expenditure came in at $104 million, more than doubled against the previous quarter, in line with expectations. This is part of the 3-year, 1 billion expansion program that is progressing well. The expenses this quarter were mainly related to capacity conversion at X-FAB France and the expansion of silicon carbide capacity in X-FAB Texas. The building extension at X-FAB's Sarawak. So in Malaysia to provide additional clean room space is also progressing well. Over the full year 2023, capital expenditures are expected to come in at around $350 million. If we can pull in delivery schedules of equipment, it would be slightly more. Let me pass you now the word to Alba for the finance update.
Thanks, Rudi. Good evening, ladies and gentlemen. And now let's talk about the financial update. Let me start this financial update by highlighting that in the second quarter, as Rudy already mentioned, we had again some high -- all-time high record numbers. with an EBITDA of $62.3 million and an EBITDA margin of 27.4%, which was slightly above the guided range of 23% to 27%.
If we exclude the effects from the revenue recognition over time, the EBITDA margin would have been 27% still in the high end of the guidance. Due to the long-term agreements with customers, which include a commitment from X-FAB to deliver and a commitment for the customer to buy certain wafer quantities. The IFRS 15 effects on over time over time revenue recognition has become material during the second quarter. As a result, we have recognized over time revenue in the amount of $8.3 million in the second quarter. As a reminder, the objective of the IFRS 15 is to establish the principles that an entity shall apply to report information about the nature, amount, timing and uncertainty of revenue and cash flows arising from certain type of contracts with the customer.
The core principle of IFRS 15 is that an entity will recognize revenue related to the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In other words, considering our long-term agreements with customers, we considered all the contracts with 100% take-or-pay clause and have recognized the related portion of revenue over time. Since the IFRS 15 are applicable, we have always made quarterly simulation of all the contracts [ feescape ] but the result was not material until now. But as mentioned above, with the additional LTAs that we have been signed, this amount now becomes material, and then we started to recognize revenues over time of $8.3 million in Q2.
And now let's go back to the key numbers of our press release. We achieved an all-time high gross profit in the second quarter amounting to $67.6 million with an all-time high gross profit margin of almost 30%, which was mainly due to volume growth and improved product mix, but also good cost controlling. Probability -- sorry, profitability was again unaffected by exchange rate fluctuations, thanks to the natural hedging of our business. At a constant U.S. dollar-euro exchange rate of 107 as experienced in the previous year's quarter, the EBITDA margin would have been 0.1 percentage points lower. Cash and cash equivalents at the end of the second quarter amounted to almost $442 million, up 26% compared to the end of the previous quarter. This increase is mainly due to the prepayments received from customers, which -- with whom we have long-term agreements in place.
This is also reflected in the cash flow from operating activities, which totaled $203.5 million. The prepayments will be used to support capital expenditures in the next quarters. And to conclude this financial section, I would like to share our guidance for next quarter. We forecast our revenue to be in the range of $225 million to USD 240 million with an EBITDA margin in the range of 24% to 28%. The aforementioned guidance is based on an average exchange rate of [ 1.10.10 ] US dollar per euro. Furthermore, we reiterate that our full year 2023 guidance is reconfirmed. And now I would like to give the word back to Rudi.
Thank you, Alba. I'm proud that ICAP has delivered another strong quarter with a revenue record and a profitability record. We continue to see high demand with automotive end markets being particularly strong. Also, the long-term forecast show good loading but all the expansions we are doing.
On the short term, a reliable supply to our customers remains key. We are fully focused on filling existing supply gas and increasing our wafer production to match X-FAB's positive growth prospects and to serve our customers. Our capacity expansion program is well underway with new equipment coming online at various sites and on a regular basis. Our unique technology portfolio supports solutions in high-growth end markets, and I see X-FAB well on track to achieve its financial and strategic goals. With this, I would like to conclude, and I'm open for questions, operator.
[Operator Instructions]
The first question comes from the line of Robert Sanders with Deutsche Bank.
I'd love to get a bit more of a sense of how much visibility you have into the first half of next year and whether -- and you're loading by site.
Well, the visibility in the first -- for next year is we have a large portion of our business covered by -- and then with all the other customers we work on forecast. And altogether, this shows a very high loading, slightly above our capacities. So we still -- we think 24 will continue to be a very, very busy year.
On silicon carbide, do you tend to be the single source for your customers? I noticed some of the companies that you supply to are exploring, doing internal as well as outsourced silicon carbide production. I was just interested if you tend to be the single source or if there are either companies that you supply to moving internal or moving to other foundries?
We have around -- so our customer base has further increased. We went from something like 28 to 31 customers for like 90% were the sole source, there are a few who have also, either in-house or maybe alternative sources.
[Operator Instructions] Michael Roeg with [indiscernible] group Petercam.
First half a couple of -- well, boring questions on accounting and that relates to the sales recognized over time. is our guidance for Q3 on the sales level and on the profit level, including an impact from sales over time, -- and if so, is that, again, in the order of magnitude of 8.3 million and 3.2 million, respectively.
So yes, there is a portion of it that is maybe in the range of 10 million.
10 million. And are these sales recognized over time? Is that really sales and profits? Or is it real cash flows? Or is this just an accounting twist that has something.
This is an accounting. So the real revenues are based on invoices and that you get paid. And after 30 days, this is a portion of the inventory that is -- well, the inventories are also recognized into the P&L that something is done already since the history of the company. But what comes on top is that the profit that is made on those products if they would be sold also is recognized over time and the revenue as well.
So in the end, if you look at -- if there is like 10 million recognized over time in the top line, there is roughly -- you could -- as a model, you can assume that there is, on average, we make like 30% gross profit margin that is also falling through on the EBIT and the EBITDA and the gross profit and the profit line.
Okay. And it's a bit strange now because now all of a sudden, I have 2 P&L accounts for the company have on the IFRS. And the second one in which I removed that, that's well, 8.3 million in Q2 and the profit impact as well.
So unfortunately, this is something that we have not chosen for, but yes [indiscernible]
Luckily, you disclosed the impact in your press release, both on the sales and the EBITDA margin. But yes, so now it's clear that included in your guidance, it's also this impact. So that's good to know..
So to keep it simple because the impact is somewhat bigger or you see a real impact when you start applying this normally, if in a year or so, the impacts are smaller because it's only the variations of it. And on average, there won't be such a big impact. So going forward, we will obviously continue to pay -- to continue to use the IFRS 15 rule. But we will not report it any separately like most companies do. So we will just talk about revenue as we...
Okay. So there is a chance of in, say, 12 to 18 months, it could be 0 impact. Can it even turn negative?
Well, in principle, yes. So if we continue to do our business as usual, but without LTA contracts, then the auditor sees okay, there are no contracts anymore. So these revenue over time doesn't need to be recorded and then you have the opposite effect. In fact, the business is the same.
Yes, I understand. But you see more how the real business is than we do with IFRS 15. I hope you continue to put a bullet in the press release with the impact and then we can do all the adjustments ourselves. Now for a question on the business itself. There was a substantial step-up in CapEx in the second quarter versus the first quarter, and there will be another step-up in the second half of the year.
Was the increase just cash flow wise in the payments? Or did you also get a huge increase in deliveries in the second quarter, deliveries of equipment?
I saw -- so the 104 million is the invoices that we paid on CapEx. So this can contribute prepayments for deliveries, for new orders that we placed and deliveries that come later that could also be intermediate payments for milestones of equipment to be delivered or final payments. But yes, there has been equipment delivered. That's clear. And -- but I cannot answer, I cannot break it down right now.
So probably the delivery will be smoother throughout the year than your cash flow statements on a quarterly basis show.
Can you repeat what is?
The delivery of equipment throughout the year will probably be relatively smooth, whereas your cash flow will probably show huge ups and downs.
Well, we expect that to come to a further acceleration. So we at least stay at least at the level where we are now for the next quarter and throughout the second half of this year. If so, we are -- we'll come in the full swing of the construction of the building in Malaysia. So we will have that and we have move-in of equipment in France and Leo for the silicon carbide, which is continuing. So that's the situation.
Then my final question on new equipment. Once you get a couple of new machines in the fab, you have to install them, test them, do production runs. How long does it generally take for a new piece of equipment to be 100% up and running? Is that half a year or a year?
Well, it depends where they are used in the process but you can, on average, take half a year, that's a good number.
And that was our final question. I'd now like to turn the call back over to Mr. De Winter for closing remarks. We do have another question from Robert Sanders with Deutsche Bank.
Yes. Just a bit of a housekeeping question. On what we see with these companies with massive CapEx is a big step-up in depreciation. So I was just wondering what is the kind of view on depreciation into next year and how that's going to depress gross margin and net income.
Yes. So the -- with respect to depreciation, so what -- the way we treat this is so we -- when the equipment are starting really volume production then the depreciation starts. So we expect -- maybe Alba, you can help me here over the next couple of years that step-by-step, the depreciations go up to.
20 -- at least 20 million per quarter.
Well, this where we are today. I think we are going to something like 200 million per year in 3 years from now when the full billion is -- this expansion is in place.
And we do have a question from David O'Connor with BNP Pariba.
Yes, great. Maybe just a couple on my side. Just firstly, on the 8.3 recognized from the LTAs. Just to clarify, is there any shipments associated with that? Or at what point do those shipments occur -- maybe for shipment.
No, David. There are no shipments linked to that is only that we made an assessment of all the contracts where we have 100% take or pay loss, and we had to make an assessment on what is a reasonable portion that will be anyhow sold to those customers. And that's why we now for Q2, we came to the number of 8.3 million at this point in time.
So this is revenue that is recognized now. But when we ship the products and send the invoice, it is not -- we already recognized a portion. So this is subtracted from the future revenue.
And the costs are recognized no as well.
Yes, the costs are further recognized just like it was also in the past, the costs were immediately recognized and went into inventory, but -- so that doesn't change. but the revenue is a portion of the revenue is recognized earlier.
Okay. And is there seasonality going forward on a quarterly basis attached to that recognition?
No. It's related to the production and as other the production for the foreseeable future continues to go up. We didn't know seasonality.
Maybe separately, another question. Just on the bookings flat quarter-on-quarter. Any change on the bookings geographically or under the whole? Is there any mix change within those bookings, maybe from an end market perspective?
Not particularly, but for -- it's mainly from a market perspective. So Automotive, Industrial, Medical stays strong. The consumer type of CCC products they are weaker. They are, let's say, somewhat well below the expectations. But anyhow, our production is at maximum. So it doesn't really make a difference.
Understood. And maybe just adding on to that, comments about demand remaining above supply. Is that just an automotive comment and with Industrial and Medical now having normalized.
We are -- yes, maybe that's a fair statement. Now in the industrial, remember, there is also a lot of our silicon carbide is also in the industrial segment there is also demand still higher than capacity.
Got it. And last one on my side, I think someone asked on utilization level. I didn't catch the answer. What was the utilization in Q2?
83%.
So this is maybe a little lower, but you need to take into account that we're transitioning in France from legacy technology. So we are kind of shutting some equipment down, ramping up with different processes, qualifying them and so forth. So that you need to take into account is somewhat a transition that's happening in France as well as in [indiscernible]
So I still have a question that came in live. On the tax that we have a swing between Q1 and Q2 this year. This is mainly due to the fact that in Q1, we booked several deferred tax assets, while we remain stable in Q2. That's the reason.
And there are no further questions by phone. Mr. De Winter, do you have any closing remarks?
Thank you. Thanks, everyone, for joining the call today, and I'm looking forward to speak to you again the 26th of October to the third quarter results. Thank you, and have a nice evening.
This concludes today's call. We thank you for your participation. You may now disconnect.