X Fab Silicon Foundries EV

PAR:XFAB

Earnings Call Analysis

X-FAB's Strong Year with Positive Outlook

X-FAB, a semiconductor company, experienced a robust performance in 2023, achieving $907 million in revenues, marking a 23% increase over the prior year, as demand soared across its automotive, industrial, and medical markets. Automotive was a star player, with 45% year-on-year growth reaching $539 million, fuelled by a significant ramp-up at its French site. Silicon carbide for industrial sectors shot up 93% year-on-year to $23 million. The company ended the year with a healthy $475 million backlog and projects a 6% year-on-year revenue increase to $215-225 million for Q1 2024, with a 24% to 27% EBITDA margin. The outlook for 2024 forecasts revenues stretching from $900 million to $970 million, with a prospective EBITDA margin of 25% to 29%.

Year-Over-Year Growth with Strong Core Market Performance

In a challenging semiconductor landscape, X-FAB shines with its fourth quarter revenues climbing to $237 million, marking a robust 29% increase from the previous year and surpassing guidance. On top of this, the fully invoiced revenue reached $240 million, denoting an even higher 31% year-on-year rise. Pleasingly, primary market segments – automotive, industrial, and medical – signified a massive 93% of the total revenue, showcasing a healthy market focus.

Annual Revenue Milestone and Segment-wise Strides

With the close of the year, X-FAB celebrated smashing annual revenue, dialing in at $907 million which presented a 23% hike compared to the prior year. The company's core end markets contributed a whopping 91% to this total, up from 84% the previous year, reflecting X-FAB's strategic consolidation in these priority areas.

Automotive Sector: The Powerhouse of Growth

Automotive remains the titan segment, with fourth-quarter revenue revving up to $152 million, a remarkable year-on-year increment of 45%. The French site's capacity expansion, vital to accommodating burgeoning automotive demand, is set to potentially double, paving the way for sustained growth in this segment.

Lighting the Industrial Path with Silicon Carbide

X-FAB's industrial segment illuminated the board with an impressive $54 million quarter revenue, a solid 28% year-on-year growth. Silicon carbide's significance intensified, surging 93% in quarter revenue and symbolizing a 33% leap over the full year, spotlighting its pivotal role in greening industries with applications in renewable energies and power systems.

Medical and MEMS: Integrating Innovation

Quarterly medical revenues nudged up to $16 million, representing a 13% year-on-year improvement. X-FAB's foray into wearables and point-of-care technologies has proven profitable, and the interplay of CMOS and MEMS technologies facilitates growth, reflected in the MEMS business quarter revenue of $28 million.

Prototyping Prowess Portends Positivity

In a remarkable show of innovation potential, prototyping revenues stepped up to $27 million in the quarter, a year-on-year upturn of 16%, signaling fertile ground for future business growth.

Guided Expectations for 2024 Amidst Shifts in Demand

Looking ahead, X-FAB braces for a downward adjustment in Q1 2024 revenue, attributing it to reduced demand for legacy CMOS technologies. Nonetheless, this is foreseen as a transient phase with prospects of revival via the microsystems and silicon carbide businesses.

Capacity Expansion: Fueling the Future

Navigating through 2023, X-FAB Texas ramped up its silicon carbide wafer production by 58%, and Malaysia is gearing up to bolster capacity by late 2023 with the aim to kickstart equipment deployment by Q4. These developments herald an upscaling momentum to meet customer demand and underpin future growth.

Financial Prudence Meets Solid Profitability

X-FAB's financial footing stays robust with an almost $60 million EBITDA in Q4 and a full year EBITDA of $245.6 million, both topping the provided guidance. The solid cash position augmented by 4% quarter on quarter to $405.7 million, ensuring ample liquidity to support ongoing and future business activities.

2024 Revenue and Profit Trajectory

The company projects the first quarter 2024 revenue between $215 million to $225 million, alongside an EBITDA margin forecast of 24% to 27%. For the full year 2024, revenue is anticipated to span from $900 million to $970 million with an EBITDA margin estimate of 25% to 29%, embedding confidence in business continuity and profitability.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and welcome to X-FAB Full Year and Fourth Quarter 2023 Results Conference Call. Today's call is being recorded.At this time, I will now turn the call over to Rudi De Winter, CEO. Please go ahead, sir.

[Rudi De Winter, executive]

Thank you. Welcome, everyone, to the conference call Fourth Quarter and Full Year Results 2023. We have in the meeting room also Alba Morganti, CFO of X-FAB.Let me walk over the most important items in the past quarter and the full year. Let's start with the quarter. In the fourth quarter, X-FAB recorded revenues of $237 million, up 29% year-on-year and 2% quarter-on-quarter, which is in line with the guidance. Excluding the negative impact of revenue recognition over time amounting to minus $2 million. The fourth quarter invoiced revenue came in at $240 million. This is an increase of 7% quarter-on-quarter, excluding IFRS, and year-on-year, this is an increase of 31%. And this is a great result looking at the overall semiconductor industry. Invoice revenues in our core markets, automotive, industrial and medical amounted $222 million, up 38% year-on-year, representing now a share of 93% of revenues.Now let's look at the full year '23. We achieved revenues of $917 million (sic) [ $907 million ], up 23% year-on-year, including $17 million in revenues recognized over time. Annual turnover in X-FAB key end markets totaled $812 million, up 31% year-on-year, and this accounts to 91% of total revenue, compared to 84% in the previous year, reflecting a successful transformation of X-FAB activities towards high-growth and long life cycle business in automotive, industrial and medical markets.X-FAB's semiconductor technologies enable sustainability and energy efficiency solutions to address today's megatrends, such as Electrification of Everything to mitigate the climate change or the digitalization of health care in the context of growing and aging societies. This is also reflected in strong demand for the broad range of specialty technologies that X-FAB is offering, including high-voltage CMOS, MEMS microsystems and silicon carbide. Bookings in the fourth quarter came in at $225 million, up 17% year-on-year, and the full year order intake was $880 million, up 9% compared to 2022. At year-end, the backlog amounted to $475 million.X-FAB automotive business continued to be very strong. And in the fourth quarter, revenues of $152 million, up 45% year-on-year. Full year automotive revenues came in at $539 million, up 38% year-on-year. This increase is mainly related to the ramp-up of the automotive business in our factory in France. The French site continued the conversion of capacities into X-FAB 180-nanometer automotive technologies, thus replacing capacity that had been used to produce CCC legacy business. In the fourth quarter, 93% of X-FAB revenues in France was based on X-FAB technologies against 84% in the same quarter last year. From this point on, we continue to grow the capacity in our French site to about double from where we were in the last quarter.Let's now look at the operate -- the industrial. Industrial revenue in the fourth quarter came in at $54 million, up 28% year-on-year. In the full year of '23, X-FAB recorded industrial revenues of $206 million, up 19% year-on-year. Contribution from silicon carbide was a key growth driver for the industrial business, with applications such as power inverters for wind, solar systems, industrial inverters or uninterrupted power supply systems.Fourth quarter silicon carbide revenues amounted to $23 million, up 93% compared to previous year. For the full year '23, X-FAB's silicon carbide business increased 33% to $73 million. The total number of silicon carbide wafers produced in '23 shows a significant higher increase of 58% year-over-year. The silicon carbide revenue growth was partially diluted by the fact that a large portion of consumers produce -- procure the raw wafers themselves and consign them to X-FAB. This applied to approximately 51% of the silicon carbide customers in the fourth quarter and resulted in a lower billing as whereas the pass-through of the substrates is not in there anymore.In the fourth quarter, X-FAB recorded medical revenues of $16 million, up 13% year-on-year. And for the full year '23, it came in at $67 million, up 21% year-on-year. Semiconductor technology is key for digital transformation and efficiency improvements in the health care sector. And X-FAB's medical business is benefiting from the increasing use of wearable medical devices as well as growing demand for testing and point-of-care. Among the growth drivers for '23 were infrared temperature sensors as well our DNA sequencing applications.X-FAB capabilities to combine CMOS and MEMS technology as well as altogether in system integration expertise is a great value driver for innovative medical solutions as well as a major growth driver for X-FAB medical business. Revenue of X-FAB microsystems MEMS business was in the fourth quarter amounted to $28 million, up 43% year-on-year, while the whole 2023, it came in at $95 million, an increase of 26% from the previous year. In addition, various medical applications, so next to various medical application, also the MEMS started volume production for an automotive headlamp application that positively contributed this past quarter.The X-FAB CCC business reached a sustainable level, recording now $17 million in the last quarter, which is down 21% year-over-year and flat sequentially. Prototyping revenues in the fourth quarter came in at $27 million, up 16% year-on-year. In 2023, they amounted $109 million, up 19% year-on-year. The prototyping revenues represent new business, adding up to the pipeline of new projects and supporting X-FAB future growth. The lower revenue guidance for the first quarter in 2024 reflects the faster-than-expected decline in demand for older 150-millimeter CMOS technologies due to inventory adjustments, primarily in the industrial and segment. And in the medium term, this will be overcompensated by transition to growing microsystems and silicon carbide business in these respective factories.From an operations update, I would like to add that the fourth quarter utilization rate varied by technology and site. In X-FAB 200-millimeter CMOS and silicon carbide and MEMS systems, capacity continue to be fully loaded, while the aforementioned decline in demand for the older 150-millimeter technologies resulted in lower capacity utilization in our factory in Texas and as well as our factory in Erfurt in Germany.X-FAB ongoing capacity expansion programs progressing well, and they are on schedule. In 2023, X-FAB Texas produced 58% more silicon carbide wafers than the previous year. And in our factory in Malaysia, the building construction to increase the site capacity to buy 10,000 wafer starts per month is expected to be completed after this summer, and it is planned to start moving in equipment in the fourth quarter of this year.Now I'd like to pass the word to Alba for the financials.

[Alba Morganti, executive]

Thank you, Rudi. Good evening, ladies and gentlemen. And now let's talk about the financial update. I would like to start this section by highlighting that the fourth quarter was another very good quarter. As Rudi already mentioned, we had an all-time high sales level with $237.7 million revenue, which represents an increase of 29% year-on-year and 2% quarter-on-quarter. Our EBITDA was of almost $60 million with an EBITDA margin of 25.1%, which was within the guided 25% to 29%. Excluding the effect of revenue recognized over time in accordance with IFRS 15 rules, the EBITDA margin of the fourth quarter would have been slightly higher and would have totalized 25.4%, representing a decline of 1.4 percentage points quarter-on-quarter, which is attributable to the various factors such as higher cost of fixed assets, increased general and administrative expenses related to the business process optimization activities, but also to the planned introduction of a new ERP system. And finally, also due to higher staff costs.The full year EBITDA came in at the upper end of the guided 23%, 27% and amounted to $245.6 million with an EBITDA margin of 27.1%, which represents a very good increase if we compare it to the EBITDA margin of 18.2% that we recorded in 2022. If we exclude the revenue recognized over time, the EBITDA margin in 2023 would have been 26.7%. X-FAB business continued to be naturally hedged in terms of currency exposure. As a result, the profitability is not affected by exchange rate fluctuations and at a constant U.S. dollar/Euro exchange rate of 10 -- sorry, of 1.02 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 fourth quarter remained strong as they amounted to $405.7 million, which represents an increase of 4% compared to the end of the previous quarter.And to conclude this financial section, I would like to share our guidance for the next quarter and full year. For the first quarter of 2024, we forecast our revenue to be in the range of $215 million to $225 million with an EBITDA margin in the range of 24% to 27%. This means at the midpoint, a year-on-year increase of 6%. The full year 2024 revenue is expected to come in at a range of $900 million to $970 million with an EBITDA margin in the range of 25% to 29%. This means at the midpoint, a year-on-year increase of 5%. The aforementioned guidances are based on an average exchange rate of 1.10 U.S. dollar to Euro.And now I would like to give the word back to Rudi.

[Rudi De Winter, executive]

Thank you, Alba. We finished the year very successfully with above-market growth rates in our core automotive, industrial and medical markets. This shows that X-FAB with its specialty technologies is perfectly positioned to continue its growth path in the future. I'm pleased with the progress we have made in expanding our capacity to better serve our customers' demand and 2024 will be a very important year for our capacity expansion programs, which runs through into 2025. The consistently strong development of our prototyping revenues, reflecting new business wins gives us confidence in X-FAB's future.With this operator, I terminate the introduction, and we can open for questions.

[Operator]

[Operator Instructions] We will take our first question from Robert Sanders, Deutsche Bank.

[Robert Sanders, analyst]

I guess the first question will be around CapEx. I think you're the only auto industrial player that I know about that is spending much more capital in the current year than they did last year. So maybe you could just walk through what gives you the confidence that there is a need for such capacity expansion in light of the inventory correction that's going on at the moment. And I have a follow-up.

[Rudi De Winter, executive]

Yes. Sure. The fact of the expansions that we are doing are based on our long-term agreements that we have with our customers. And so the forecasts going forward in 2024, '25, '26, they still require these CapExes. So there is no fundamental change. So the weakness. So we still are fully utilized, and demand is still higher than what we're able to produce. And the expansion, why this year is much higher than previous year, and it will be also higher than 2025 is the fact that in factory in Malaysia, the building will be ready for equipment move in just after the summer. So in the fourth quarter, we will have a peak in equipment. That is then all moved in. It will continue a bit in the first quarter in '25. And then it's all about ramping up these equipments and ramping up the capacity.

[Robert Sanders, analyst]

Got it. And on the industrial slowdown, when do you think the worst of the correction will be over? Do you still think it's the second quarter? Do you have any visibility into -- which parts of the industrial market are really suffering at the moment, that would be interesting as well.

[Rudi De Winter, executive]

Well, in the industrial market, it's very fragmented. And what we do see it is across the board in all these customers, a lot of our industrial business is also very long life cycles, and therefore, still a lot of it is in the 150 millimeter in the 6-inch factories, where we saw this really dropping demand or this signal from the market in the second quarter last year. But with the large backlog that was still there, we continued our shipments. And so I expect, so then the bookings came down, we see this effect now. And in -- I expect that maybe ordering will start again somewhere in the second quarter, but that means then also with revenues rather in the second half of this year to pick up again.

[Operator]

[Operator Instructions] We have no further questions. Apologize for that. We will take our next question from Robert Sanders, Deutsche Bank.

[Robert Sanders, analyst]

Yes, just a quick follow-up. On your largest customer, they were talking about qualifying new foundries. I mean, on their conference call, I just wanted to understand given that the specialty foundry, foundries out there are very underloaded when you look at the Chinese and UMC, they're all significantly underloaded. Is there not a risk of some opportunistic qualifications from your customers of these foundries who may be offering lower pricing than you have agreed on the LTA.

[Rudi De Winter, executive]

Well, the -- first of all, it's very important to note that in the automotive, the industrial, the business were in is based on specific technologies and the -- for our customers to switch is a very big burden. So typically, this is then done on new projects. But if you look at the life cycle of the products and also if you look at, for instance, X-FAB, in our business portfolio, the majority of products are actually -- is revenue generated with products that were designed -- that launched production a year or more ago. So actually, in 1 year, there is a very small business. So the capability of maneuvering is very limited. So it typically is done on brand-new products. And yes, typically, while there's not a big change possible in a year or 2 or 3 years. But for sure, in the longer term, it's something that, yes, we need to take into account, and that is part of the planning. And so yes, we know about that.

[Operator]

We will take our next question from Guy Sips from KBC Securities.

[Guy Sips, analyst]

Two questions from my side. First, you were highlighting that you were implementing a new ERP system, is that finalized? Or is there some spillover in the first quarter of this year? And second question is on the CapEx in Malaysia. So the book will be done in the fourth quarter, but then you will have a period of testing? Or how long do you expect this period to be and when will be the first, let's say, full-fledged production will be ready as from what [ they begun ]?

[Rudi De Winter, executive]

Yes. So first, with respect to the ERP, unfortunately, this is not something that is done in a couple of months. It's a project over a couple of years. The -- so also, just like the previous implementation of the ERP, this is activated, the cost related to the implementation and then our written off once the ERP is -- comes live. Now we believe we expect it to be live in [ '20, end '25 ], beginning '26. So there is still no work to be done on that. So -- but there are some costs that are associated to the implementation that we -- according to our audits cannot be activated and so therefore, they are taking as cost. And another portion of those costs are activated.And then you had a question with respect to the ramp-up in the factory in Malaysia. So it's the -- this is a period of -- the majority of the equipment will be moved in, in the fourth quarter and beginning of the first quarter of 25%. Then there is a period of qualification and some equipments, it takes longer than others. So it's not a sudden ramp-up of the capacity. It's more gradual, and we will be seeing an increase of the output and revenue generation of these capacities gradually increasing starting the second quarter '25 up to the first quarter '26. We will be more or less a linear increase of the output over that period.

[Operator]

[Operator Instructions] We have no further questions on the line, and I would like to turn the call back over to speakers for additional or closing remarks.

[Rudi De Winter, executive]

Thank you very much, everyone, for joining the call today. I'm looking forward to speak to you again on the 25th of April to explain the first quarter results. Thank you very much, and have a nice evening.

[Operator]

Thank you for joining today's call. You may now disconnect.