Inficon Holding AG

SIX:IFCN

Earnings Call Transcript 2022-Q2

[Bernhard Schweizer]

Good afternoon and welcome everyone in Europe and Asia. Good morning, everyone in America. My name is Bernhard Schweizer, Investor Relations contact at INFICON.

I have the pleasure to host this Microsoft Teams webcast of our Q2 and half year 2022 results conference. With us today are Lukas Winkler, CEO of INFICON; and Matias trendless, 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 Q2 and half year results together with the links to the accompanying visuals for this web conference and the half year report. All documents are available for download in the Investor Section of the INFICON website, www.inficon.com.

We ask online participants to post their questions in writing using the chat function in MS Teams. This should be the second icon in the top-right hand menu. Alternatively, you can also add yourself to the queue of people wanting to ask questions orally by clicking on the Raise My Hand icon. I would also like to inform you that we record this web conference to archive the audio file later on the INFICON website.

The oral statements made by INFICON during this conference 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 hand over now to Lukas Winkler. Lukas, please?

[Lukas Winkler, executive]

Thank you, Bernhard. Good morning to everyone or afternoon. It's early morning here in California. Thank you for joining us today to review our results for the second quarter of 2022. Despite several ongoing global crisis as well as unstable political situations in certain countries, our main businesses seem to be less affected than others. We just experienced the 10th consecutive quarter with a book-to-bill ratio over 1, which increased our already very high order backlog even to a higher level. Therefore, we had to revise our capacity additions and investments into new facilities, processes, and calibration tools again.

Let me share some good news before we go into the details of the second quarter. Last week, we got the single largest order ever. The U.S. Department of Defense placed an order for HAPSITE products worth more than USD 25 million. More to that later. Let's talk about the results of the second quarter first.

In total, our revenues were organically, meaning without any acquisitions and foreign exchange currency fluctuations, almost 15% above last year second quarter, and we finished with sales of USD 139.8 million, which is 1.1% above the first quarter of this year. All regions contributed to the sales growth. Market wise, the General Vacuum market was the largest contributor.

Our main concern remains the weakening gross profit margin, mainly due to increased material prices including very high brokerage fees to get certain electronic components. With stable operating expenses, we finished the quarter with operating income of USD 25.1 million or 18% of sales compared to USD 22.8 million or 18.1% of the sales for the same quarter a year ago. Net income reached USD 19.9 million or 14.2% sales. Matthias will review the numbers with you in more details later, while I will highlight some important developments in our target markets first.

On this slide, you can see the sales breakdown in our served 4 key markets as well as the regional sales trends. The pie chart shows an increased contribution from the General Vacuum and Semi & Vacuum Coating market primarily at the expense of the reduced contribution from the RAC auto market. Sales to the Semi & Vacuum Coatings market represent now presently more than 50% of overall INFICON revenue. Asia remained the most important sales region and did grow again sequentially as well as year-over-year. The overall sales trend in Asia over the last 10 quarters is much stronger than the trend in the North America and Europe.

Now let's do a quick analysis market starting with the smallest one. In the Security & Energy market, sales decreased 31.4% year-over-year and 15.7% sequentially, and reached low USD 4.3 million. The majority of sales is still going -- coming from or going to the energy market, especially for green energy and then biomedical applications. On the other hand side, on security market, sales of our flagship product, the HAPSITE, continue to be low, despite the fact that it had some first successes with the new HAPSITE CDT in Europe. And as mentioned at the beginning, we finally got a large 2-year contract from the U.S. Department of Defense for our HAPSITE chemical identification system for on-site risk analysis and emergency response worth more than USD 25 million.

The first shipments will take place at the end of Q3 this year. We are very proud to have received this award for HAPSITE instruments, which is a proof –- a proven product to provide lab quality on-site for safety and security applications around the world. 2022 will remain challenging for us, but with this large order, we are much more positive for the next 18 months.

Now moving to the Refrigeration, Air Conditioning & Automotive market. On this slide, sales decreased 9.5% year-over-year compared to a record second quarter in 2021, but increased 3.5% compared to the first quarter of this year and reached USD 23.9 million. The RAC market remains stable and the lithium battery testing market is getting hotter and hotter at the expense of the traditional Automotive market.

Sales of our aftersales handheld service products line has been negatively influenced by the COVID lockdown in Shanghai. Our factory had to shut down for 2 months. Therefore, we haven't been able to ship any products during that period. The overall market needs for fully automated and integrated quality inspections for leak tight components and products is still growing. Safety concerns and environment friendliness are the main driver for existing refrigeration and air conditioning applications. And, of course, the same can be applicable for lithium-ion batteries for e-cars as well as for mobile devices. We remain positive for the rest of the year in this market.

Now let's go to the Semi & Vacuum Coating Market which includes besides semiconductor applications some optics and display markets where sales increased 17.4% year-over-year and sequentially 3.9%. And we reached USD 74.4 million with Asia, again, contributing the biggest part of the sales growth.

Equipment manufacturers as well as chip makers continue to invest in the latest state-of-the-art technology, especially for analog and logic chips. The China semi initiatives continues as well. But certain U.S. DoD as well as DoC restrictions made doing business with certain customer more cumbersome and time consuming. Currently, a single-digit million-dollar figure worth of shipments are just waiting in our warehouse to get the respective export licenses.

Luckily, on the other hand side, local Chinese equipment manufacturers continue to grow and we gain a lot of market share with our European based products. The semiconductor market will remain the most attractive growth opportunity for INFICON not just financially, but also technology wise. New chip designs, new materials, and manufacturing processes increased the need for more accurate process control and monitoring. Therefore, we continue to work very closely with OEMs as well as end users to develop new sensors, solutions, and methods to assure high quality mass production of new chips.

Government incentive programs to support initiatives to produce critical parts locally and reduce the dependency from a single source, and the record number of announced new fabs in all major regions of the world are all good news for INFICON from a long term point of view. Nevertheless, Semi market will remain cyclical and some first signs from the memory chip side of the businesses could be seen as first indications for a possible next -- currently, we do not see any weaknesses in our auto pattern, we're optimistic for the coming 12 to 18 months.

Finally, we had a good second quarter in the General Vacuum market. On this slide, with sales of USD 37.2 million, which reflects a year-over-year increase of 22.8% and the 3.4% decrease against a strong first quarter of this heavily influenced by the weaker euro against the U.S. dollar in our strong European business.

China continues to be a strong contributor as well despite the ongoing COVID issue that we have in China. We sell analysis measurement and control products for many different industrial applications through private label partners, which are primarily the vacuum pump manufacturers, and via direct sales channels to industrial OEMs and distributors. With thousands or ten thousands of small and mid-sized customers, we continue to expand our market reach with new distribution channels, a second brand as well as digital tools such as webinars and global marketing campaigns. Looking ahead, we expect a very successful full year 2022.

Now let me close my part of the presentation with an outlook for this year on this slide here. Despite the increased uncertainty due to the mentioned crisis, we maintain our optimistic view for the full year 2022. Since we do not see any impacts in our order book yet, sales is expected to be between USD 560 million to USD 600 million. Unfortunately, with a slightly reduced operating income of approximately 19% of sales due to the price pressure and the weak gross profit margin that we still are working on, our main concerns are the availability of certain components, mostly electronics. Our capacity addition programs are on track and we will have a much higher manufacturing capacity available by the end of the year.

Market wise, we see an ongoing strong dynamic from various parts of the world. Semiconductor market order remains high. The lithium-ion batteries are the bottleneck for the growing e-car market. Safe and enough energy around the world is a concern for almost everybody. The fast growing Chinese vacuum applications that I mentioned before, and last but not least, the awarded U.S. DoD HAPSITE program that we just got.

With that, I like to turn over to Matthias who will give you more details about our financial performance. Matthias, please.

[Matthias Tröndle, executive]

Thank you, Lukas. Good afternoon, everyone, and welcome to our conference call. I will cover our Q2 financial performance, comment the half year results, and also close with the guidance for the current fiscal year. Let's begin with a revenue segmentation on Slide 11.

As you have already seen in our press release, revenues for the second quarter of 2022 came out at $139.8 million in Q2. This compares to $126.3 million in our second quarter last year. This represents an increase of 10.7%. Taking into account the negative currency impact which is mainly driven by the strong U.S. dollar or the weak euro of minus 4.6% or $5.9 million and the small contribution from acquisitions of 0.4%, we achieved an organic growth of 14.9%.

Mr. Winkler has already gone into the details of the development of the individual markets. The highlights are that sales in the Semi & Vacuum Coating and the General Vacuum market did increase with double digit growth rate, Semi by 17%, and General Vacuum by 23%. Refrigeration, Air Conditioning & Automotive as well as Security & Energy did decline by 10% respectively at 31%.

Compared to Q1 of this year, sales to both Semi & Vacuum Coating and Refrigeration, Air Conditioning & Automotive did grow by 3.9% respectively at 3.5%. General Vacuum achieved the second-best sales level and broader, but was slightly below record Q1. Security & Energy had a weak order, declined by $0.8 million compared to Q1. With that, the second quarter of 2022 showed a 1.1% increase and reached after Q4 last year, the second best quarter in terms of sales.

Now let's turn to the regional distribution of sales. Compared to the previous year, we had the highest growth in Asia with 21% followed by Europe with nearly 6% and North America which developed stable. Both Asia and Europe showed a strong growth in Semi & Vacuum Coating, and the General Vacuum market.

Let's go to the next slide. Gross profit margin reached 45.3% in Q2, down 300 basis points versus Q2 last year, and down 177 basis points compared to previous quarter Q1. Higher volumes partially offset by rising material prices, increasing broker fees, and higher freight costs have been the main drivers for the reduction in gross profit margin.

What happened on the cost side? We spent $11 million on R&D in Q1, a decrease of 12.7%. As a percentage of sales, expenses decreased to 7.9% in the second quarter. Less external spend and project related cost plus unfavorable foreign currency impacts did drive this decrease. But don't worry. We have unchanged focus on our research and development projects, which confirms our plus of 35 headcount additions compared to last year in Q2.

In SG&A, the expense level showed $1.6 million increase, personnel expense due to increased headcounts, general increases and factors like reviving trade shows and travel as main driving elements partially compensated by favorable foreign currency impacts.

So this results into operating profit for the second quarter of $25.1 million or 18% after $22.8 million or 18.1% in Q2 last year. This corresponds to an increase of 10.1%. The income tax expense for the second quarter was $4 million, which represents an average tax rate of about 17%.

The net profit therefore reached $19.9 million or 14.2% in Q2. This compares to $17.6 million or 13.9% in the prior year, a 13.1% increase in absolute numbers. Consequently, we see similar development in the earnings per share. This went also up by 13.1% and stands at $8.14.

Now let's move to the balance sheet. Our net cash reached a negative $1.3 million in Q2 compared to $55 million at the end of last year, and for better comparison net $27 million in the second quarter of last year. So what did drive this decrease? There are basically 2 main factors. One is our working capital development and as a consequence, a lower operating cash flow performance. And #2, our CapEx and investment program.

First of all, our working capital which consists of accounts receivables, inventories, minus accounts payables, closed at close to $164 million or 29.3% of sales, and was with that about $12 million higher than end of last year.

The majority of that increase is contributed to around $20 million increase in inventory due to the high business levels partially compensated by lower AR and better AP. As a consequence of that, the increased working capital level and in combination with lower provisions and liabilities, our operating cash flow reach the level of $11.9 million, improved versus the previous quarter but declined of about $18 million against our record cash flow figure from Q2 last year.

Both indicators for turns -- both indicators take turns for inventory and DSO for accounts receivables finished at a similar level compared to Q4. The second waiver, and as shared end of last year, we continue to invest in our capacity, meaning mainly building and machinery and equipment. After $8.6 million CapEx in Q1, we had another $9.5 million in the second quarter. On the second half of the year, we expect somewhat declining and lower figures here. The balance sheet shows a solid structure with 59% equity ratio, and no long-term debt.

So those were my comments on balance sheet in Q2. Now briefly want to give some comments regarding our half year performance.

Net sales for the first 6 months of 2022 reached $278.1 million compared to $249 million in the same period of last year. This represents a $29.1 million increase or 11.7%. As this includes a negative impact of $8.6 million or 3.5 percentage points from changes in currency rates as well as a slight positive impact from acquisitions, the organic growth in net sales amounts to 14.8%.

In the first half of 2022, sales increased by $21 million or 17% in the Semi & Vacuum Coating market, and about 20% in the General Vacuum market. The other 2 markets, Refrigeration, Air Conditioning, and Security & Energy, declined by 8% respectively 7%.

If you look at the regional development, we can know that all regions have grown in the first half of 2022. The majority of sales did go to Asia, where we reached $132 million of sales and approximately 47% of our worldwide sales. This represents a 16% increase compared to the last year first half. Semi & Vacuum Coating and General Vacuum have been here the main drivers.

Second largest region is Europe where we had a 10% growth and in North America we had a 9% increase. We reached, for the first half, an operating income of $52.4 million or 18.9% after $47.4 million or 19% last year. Despite the lower gross profit percentage margin, the sales growth, nearly stable already, expense did result in a 10.6% higher operating income. As mentioned in our press release, the complete half year report 2022 is more details is available in the Investor Section of the INFICON website.

Finally, towards the outlook. Mr. Winkler has already gone into the details and made his comments and the assessment of the market. Due to the current geopolitical situation, the ability to forecast is generally somewhat limited. But based on order book, order intake, and overall business situation in our end markets, we are quite positive for the current year. We expect sales between $560 million and $600 million, slightly higher than previously $550 million to $600 million, and an operating income margin of around 19% where we had previously over 20% as a target.

With that, I would like to close the presentation. We are now ready to take your questions.

[Bernhard Schweizer]

Thank you, Matthias. Thank you, Lukas. I see that we have a first question from Jorn Iffert.

[Joern Iffert, analyst]

If I may start, there's 2 questions. The first one is on your gross profit margin. This is an issue we now observe since 1 or 2 years. You had initial activities to offset this. What can you do from here now? Do you have to wait for lower input costs, is broker fees are going down? Is there anything you can do about this situation right now?

And the second question, if I may, you stated the full capacity will be there end of 2022. I think previously it was around summer 2022. Has anything changed? And if we, for example, go into a downturn in '23-'24, how flexible are you after this capacity investments in terms of to preserve the growth in EBIT margins?

[Lukas Winkler, executive]

Let me start with gross profit margin first. I think as you can assume, we work on not just one front, but on several fronts to get a better level. And then on the gross profit margin, it starts with trying to negotiate with suppliers something that might not be that dramatic. Secondly, we do the same on the pricing side, have some discussions and some tough discussions with customers to adjust the prices upwards so that we can compensate that a little bit. But -- and last but not least, I hope -- and this is a critical element from a timing point of view because it usually happens very quick that you go from a brokerage fee-based market to an oversupply and you have to exactly catch that moment in order not to pay too much and still get in your components. And so we pay quite a lot of attention to how that development actually develops.

If we see first indication of brokerage fees might go away, then we have to immediately jump in and make sure that we do not pay any fees anymore. So we have to time all the actions to not miss that point of opportunity. Now having said that, short term wise, that's probably will not have a huge impact. But we believe going into Q4 and Q1 next year, we might see first indications of an improved gross profit margin percentage.

Now capacity wise, I have to say you're partly true. We are almost done in one location. This is Balzers. Balzers is probably the most advanced in terms of capacity additions. We have some -- as most other customers as well -- we get some delays of not getting all the calibration tools on time because our suppliers are missing certain components as well. But it's almost done in Colombia on track of having the processes installed. We need a little bit more people. We are still lacking enough people on the production side, it's not so easy to get qualified personnel staff to work on our high-tech components.

And in 2 other locations, one is in Finland and the other one is in U.S., there we are not that far advanced and in certain case we don't need to. And in Finland we have a little bit delay. But nevertheless, by the end of the year, I think we should be fully loaded and ready to go then into 2022 -- 2023, sorry. So that's why it's depending on the situation and the location. In certain areas, we are already up to the high level of capacity. In others, we are not quite ready yet.

[Joern Iffert, analyst]

So how much resilient are you after this capacity expansion when you would go into downturn in '23-'24, just evaluate this risk?

[Lukas Winkler, executive]

I mean, we will add fixed costs, there's no doubt about that. Matthias mentioned that we have already spent quite a high million dollar figure for new equipments and machinery. And so we will add to the PP&E, and therefore will increase also the need for depreciation. So we might lose a little bit on the flexibility regarding fixed costs. But on the other hand side, our fixed costs are not that high anyway. And so therefore, I do not see a big risk of being exposed to – if there's a downturn that we might not be able to offset some of the costs. This is not my major headache at all.

[Bernhard Schweizer]

Michael Foeth is next in line. Are you with us, Michael? Would you like to ask your questions?

[Michael Foeth, analyst]

Just 2 or 3, if I may. The first one would be regarding the timeline of the delivery and revenue recognition of the large U.S. Department of Defense order. If you could help us when this starts and how long it will last approximately? And then maybe following up on Jorn's question on gross margin. Maybe asking a bit differently, what are you currently seeing in your supply chains? Are you seeing any changes, is anything easing yet? You sounded a bit more optimistic that broker fees might go away. Is that really something you're seeing or just hoping for? And then adding to that sort of question, if you could help us what your gross margin assumption is in your full-year EBIT margin guidance? What's the underlying gross margin assumption there?

[Lukas Winkler, executive]

The timeline that DoD -- and this is a 2-year contract, but the department will take the products also sooner if we can make them. So you can say it's probably -- it will be kind of a 18 months' time frame until we have shipped all the products to the DoD. And it needs to be in line with the capability of training people and deploying them to the different bases in the U.S. But it's probably a deployment starting end of Q3, meaning September timeframe. Probably we'll stop -- end somewhere in the first quarter of 2024.

From a GP, gross profit, percentage point of view, no, we don't see yet brokerage fees going away, but we know from the last 2 crisis that they will suddenly end. And this is something that our purchasing people need to pay attention to. So they do not make a commitment for 2 years. So making commitments just for the product that we actually need, not going into a long-term contract because we know from experience that once they stop to charge fees, it will go very quickly. But currently, we don't see that yet. So this is a certain -- as you said, there's also some hope in it that it will. But I cannot tell you does it happen this year or early next year.

And I think -- I don't know exactly, but Matthias, you might have to jump in. Our assumptions for the rest of the year do not indicate a huge improvement, but I might be wrong, but I have to refer to you.

[Matthias Tröndle, executive]

Yes, you are not completely wrong. No, I think it's really pretty okay. So the estimate for the full year is around 46 something percent.

[Bernhard Schweizer]

Next in line is Marta Bruska. Marta, would you like to ask your questions now?

[Marta Bruska, analyst]

I would like to follow up on those brokerage fees. I know it takes up quite a bit of the discussion from Q&A. But just to clarify, is that a very specific component that we would wait for easing in the Semi kind of industry in order to get this fees away? Or is the general economic slowdown and the recession as we just heard you as we've seen the recession already now? Is that going to help with that some sort of components, more simple electronic components that they're used everywhere in elevator? So can you guide us a little bit please?

[Lukas Winkler, executive]

If it would very simple, I would be happy to do it. But unfortunately, we're not just talking about one component, and so that's several components that are also in high demand from other industries, not Semi, but mostly car industries and other industrial goods. We try to avoid using chips that go into the communication industry because they usually do not last that long. So we are looking for components that last very long, and they're used primarily in automotive industrial applications. Therefore, there is a fight about who gets them.

And as you know, the car industry, especially e-cars, they need a lot of chips. And therefore, that's our main concern. And those chips are not made on -- those are not fancy 7-nanometer chip, those are relatively traditionally old-fashioned chips. But that's not where the investments of the semiconductor goes into. Most of the investment goes into new high-tech investment, but not necessarily to make sure that some low-tech components get attention as well. Therefore, it is a fight against other industries. And we just have to make sure that they get products, and we prioritize clearly -- being able to ship or having a lower cost. So that's why we on purpose accept lower gross profit margin, just to keep our customers somehow happy and at least fulfill our commitments to ship our products to them.

[Marta Bruska, analyst]

Do you still have the feeling that this strategy leads to the market share gains already?

[Lukas Winkler, executive]

Yes. We believe so.

[Marta Bruska, analyst]

And then I had one follow-up to that. Maybe it comes back to my mind. So with regard to the Refrigeration & Air Conditioning, your guidance assumes a very strong acceleration in the second half. And now we know that the COVID Zero policy is here to stay, right? But we heard also that from other companies that the people on the ground learn to cope with this lockdown much, much better. Is that also your experience? Or do you feel quite confident that this will be --?

[Lukas Winkler, executive]

Yes, this is our experience as well. So the COVID impact from a revenue point of view has been limited so far, that we had some issues with our own production site in China, but now they are back, they are working. So the reason why we are optimistic about the full year is that the capacities that we're now building up in Cologne, where we make most of those products are almost done. So therefore, we should be ready to ship more products.

[Marta Bruska, analyst]

And now I remember, so the CHIPS Act was passed yesterday, right, in the U.S., and in Europe, we have a similar initiative, the European Chips Act. Now we mentioned as well, there is this unusually large kind of product pipeline for the greenfield projects. We know that should drive the sales probably already in the second half of 2023 for you, right? So is this -- do you think this CHIPS Act was something that was already anticipated by the industry, and this greenfield project is already because people knew it's coming? So will this spur additional marginal investments and we will see even more demand? What you're feeling, and when do you expect this to show in your demand for your products?

[Lukas Winkler, executive]

The CHIPS Act is already figured in. There's no doubt about that. Everybody expected that it will pass anyway. [indiscernible] So therefore, there's no new initiatives coming based on the recent fact that it has now passed. So that's not at all. And for the greenfield applications, we might prefer some additional investments, but it's not a huge growth driver for us. But it might enable certain initial steps that otherwise would have been pushed out. So therefore, it's definitely positive for us, but I don't think that it will generate a lot of additional revenue. But it's nice to see that it went through. So people are now ready to invest.

[Marta Bruska, analyst]

And just to confirm on the memory impact. So we've seen some players cutting -- thinking about cutting even a little bit more. Now you don't see anything yet. You are not so exposed to memory as some other players, I think. So that shouldn't be so bad. And then thinking of this perhaps the greenfield impact next year, do you actually expect any slowdown? If so, that would be just the Q1 next year? Or how are you thinking of all these moving parts?

[Lukas Winkler, executive]

We will definitely see some slowdown in our order book, but the impact on the revenue side might be very limited because if you look at our backlog, there's so much that needs to be shipped and installed that we can easily cover, let's say, a dip in the order pattern and still growing the business from a revenue point of view.

[Marta Bruska, analyst]

So for a quarter or 2, like how long would you -- could quantify it?

[Lukas Winkler, executive]

We do not quantify exactly how our order backlog looks like, but you can assume it's quite a long distance.

[Bernhard Schweizer]

I believe Jorn has another question. Is that correct, Jorn?

[Joern Iffert, analyst]

Yes, 2 to 3 questions, if I may follow up. Coming back to the gross profit margin, what is roughly your low- and medium-term target? I remember 5, 6 years ago, it was 50%-52%. Now we're sitting at 46%. What do you roughly look for in the medium term when things normalize? Is it now around 48%? Just to double check this. The second question is, you mentioned you added 35 new R&D head sand what are they exactly doing? And the last question, if I may say or ask, in the new end markets like battery or coating, has anything incrementally changed to the positives and negatives over the last 1 or 2 quarters?

[Lukas Winkler, executive]

So target wise, gross profit margin, I think we would like to get to 50% still as a target. But that depends a little bit on the product mix. And since we also added now certain products at [ Heff ], by definition, a little bit lower gross profit margin. We might not get to the 52% that we originally targeted. But I think it's still possible to get to somehow between 48% and 50% in the midterm.

From -- you asked a question about the 35 people. That's a very good question. What do they do? I hope they are very productive. And I think our managers make sure that they are. The main reason is that we have a high number of new projects that they're working on that are not meant to produce revenue tomorrow, but maybe to revenue in 2 to 3 years. And those products are usually together with customers. And so we have quite a high number of initiatives going on in parallel to make sure that we also have the right products ready for the next round of new applications, especially in semiconductor markets, but also in certain fields in the battery market.

And you mentioned battery anyway. No, we don't see any change at all. It's still a bottleneck. We actually just developed a new product that goes into the battery market, primarily in China. So we made a special product for a Chinese large customer. And so that's one of the reasons why we also hire people so that we can speed up certain projects, especially in the lithium-ion battery market. It goes so quick that we do not want to miss any opportunity. And therefore, we have more people on board just to make sure that we finish our projects earlier, so that the competition cannot catch up.

[Matthias Tröndle, executive]

And maybe in addition, Jorn, I especially added this comment for you because last time you have been very skeptical and you said, well, why did you -- why are you decreasing your spend? Is there something I should know, right? So this time, I said, okay, I make it a little bit more practical. I said, okay, we really added 35 people and for sure. They are busy. There are many projects going on, and we want to be ready, for the time after Lukas is here, right? So this is more midterm investment. So therefore, just as an addition, and I also would support the 48% to 50% gross margin statement which you guys just read.

[Joern Iffert, analyst]

The background of the R&D question was more of the 35 new people, are we looking for totally new products or if they are further strengthening the existing team for existing products. But I understand that it's more for totally new products.

[Lukas Winkler, executive]

Not necessarily. There's also some additions, especially in our software team. We are -- we do not have enough software engineers. So they are -- on the software side, it's also supporting the existing kind of software products that we have. They're not just all for new projects, there's also some support for especially on electronics and software side.

[Joern Iffert, analyst]

And the last question, if I may, on this topic, how many total R&D people you have at the moment? Roughly.

[Matthias Tröndle, executive]

250.

[Joern Iffert, analyst]

250?

[Bernhard Schweizer]

I think that Serge Rotzer has another question for us.

[Serge Rotzer, analyst]

Well, basically, you have narrowed the sales guidance by $10 million down to $40 million. But on the other hand, there are only 5 months remaining, so basically with the uncertainty. But I don't want to discuss that. It's more the question, what are the reasons for -- is it the components you don't get? Is it the U.S.-China story? Is it capacity you have to build up first? Or is it that you have to wait on the OEMs that they are asking for the shipments. Can you give us more flavor where are the bottlenecks for this uncertainty?

[Lukas Winkler, executive]

It's definitely not your last point. Our OEMs take whatever we make. And so it's a combination of all levels. So if you have to prioritize it, I believe material shortage probably has the highest priority followed by currently more people shortage, not necessarily capacity on the machinery anymore. And then the -- you mentioned the third point. Of course, this China-U.S. issue is a big one, and it has a certain swing. If we get licenses for all the outstanding shipments, that helps. That's why we kept the range relatively wide and did not narrow it even more, especially because of those potential [ swings ] that we see in getting export licenses. But that's the third point. The 2 top points are capacity related.

[Serge Rotzer, analyst]

Do you believe that this range is more back-end loaded? You remain back-end loaded that we have seen 2 years ago? Or do you believe that you can solve this during the current quarter?

[Lukas Winkler, executive]

No, it's certainly back-end loaded as always.

[Serge Rotzer, analyst]

Probably one for Mr. CFO. I'm not sure whether I heard and you said you had CapEx of $18 million, isn't it for the first 6 months, and you said you add another $9 million, is this correct? So we have $27 million for the whole year.

[Matthias Tröndle, executive]

No, it was $8.5 million in Q1, and it was $9.5 million in Q2.

[Serge Rotzer, analyst]

Okay, this was in Q1.

[Matthias Tröndle, executive]

18 -- roughly $18 million in the first half, and I expect somewhat lower figure for the second half.

[Serge Rotzer, analyst]

Okay. But still clear above $20 million, then…

[Matthias Tröndle, executive]

It will not go to 0, that's our -- that's a [indiscernible].

[Lukas Winkler, executive]

Throughout the [indiscernible], $30 million, then a little bit over $20 million.

[Bernhard Schweizer]

Any more questions? I don't see anyone in the list, but this is your last chance. Just raise your hand or speak up. If not, then we would hand over again to management for closing remarks.

[Lukas Winkler, executive]

Thank you, Bernhard, and also thank you to the audience to have waited until the afternoon to get the earnings call and but it was more convenient for me to participate. So therefore, thank you for your patience and then looking forward to see you in person, hopefully, sooner or later within the next 2 quarters. Have a good day, and yes [Foreign Language].