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Melexis NV
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Good day and welcome to the Melexis Full Year 2022 Results Conference Call. This meeting is being recorded. At this time, I would like to hand the call over to Mr. Marc Biron, CEO. Please go-ahead sir.
Hello everyone. Welcome to the earnings call related to our Q4 and full year results. Today, we have two speakers, Karen Van Griensven, our CFO and myself.
Let's cover some topline and financial background first after which Karen and myself would be happy to answer any question you may have.
Our revenue in 2022 has increased by 30% compared to 2021. This increase was supported by the dollar effect, the price inflation, the improved product mix, the cap sales increase and the content growth.
Our growth in '22 was severely constrained by the supply, but it was also clearly driven by the car electrification as well as by a significant increase in body chassis and safety applications. Those trends are also visible in the outperforming product line. First of all, the revenue of the current sensor product line has doubled in '22, thanks to high demand in investor, on-board charging, DC/DC converter applications.
The sales of the embedded drivers which are supporting thermal management in electric vehicle has also increased by almost 50% in '22. And the increase of the sensor content in safety application has contributed to the highest growth in absolute value of our magnetic sensors.
We have launched 16 new products in '22 and those launch also confirmed those trends. Just as an example, we have launched embedded driver which are used to position the activator or the thermal valve and therefore, those embedded driver has key element to increase the range of electric vehicle.
We have also launched a current sensor which is used for the battery monitoring of the electric vehicle. And we have launched multiple magnetic position sensors that are used in steer-by-wire system but also in the thermal valve of the electric vehicle.
For 2023, we anticipate the continuation of supply chain constraint for the innovative applications that are used in the electric car and also high-end car. While for the other application demand and supply are moving to a healthier balance.
I'm now giving the floor to Karen for more financial results.
Thank you, Marc.
Hello everybody, a bit on the financials. So the sales was already mentioned, a 30% increase. We reached €836 million. Then there was an impact of 5%, a positive impact because of the strength of the U.S. dollar. The growth result was €374.7 million or 44.8% of sales, which is an increase of 37% compared to 2021. R&D expenses were 10.8% of sales, G&A was at 4.9% of sales and selling was at 2% of sales. The operating margin, our results was €226.5 million or 27.1% of sales, an increase of 53% compared to €148.4 million in 2021. The net result was €197.2 million or €4.88 per share, an increase of 50% compared to €131.1 million or €3.25 per share in 2021.
The Board of Directors also approved a proposal to the Annual Shareholders meeting to pay out over the result of 2022, a total dividend of €3.50 gross per share. This amount contains an interim dividend of €1.3 per share, which was paid in October '22, and the final dividend of €2.2 per share, which will be payable after approval of the Annual Shareholders meeting.
We'll go to the outlook. So Melexis expects sales in the first quarter of '23 to be in the range of €225 million to €230 million. For the full year '23, Melexis expects a sales increase between 11% and 16% with a gross profit margin around 45% and an operating margin around 26% at the midpoint of the sales guidance, all taking into account a euro/U.S. dollar exchange rate of 1.08. For the full year 2023, Melexis expects CapEx to be around €70 million.
So I would like to now open the Q&A session. So operator, please go ahead.
Thank you. [Operator Instructions] Our first question comes from Francois-Xavier Bouvignies from UBS.
Hi. Good morning. I have couple of questions, if I may. The first one is maybe coming back to your outlook. I mean, if we look at your Q1 guidance, it implies 24% growth year-over-year. And I mean, your full year is on 11% to 16% year-over-year. So I was wondering it would imply significant slowdown or even no growth in the second half of the year. So I mean, are you being conservative here or in light of the macro environment or is it something that you see and the slowdown and any drivers you could provide for this implied slowdown would be helpful.
Yes. Thank you for the question. Yes, we are more cautious by the supply aspect because all the -- or the vast majority of the growth is coming for innovative products or for innovative application, electrification, ADAS and also premiumization. And yes, those new products needs to ramp up, and it's why we are a bit cautious on the supply aspect for the full year.
How much supply do you have in volume term? I mean do you get from your foundry partners?
Can you repeat the question?
What is your supply incremental that you get from your partners? How much you can increase your capacity in '23 versus 2022?
From 11% to 16% increase that we have guided is mainly constrained by the supply.
So it's mainly volume here?
Yes. It's difficult because any hiccup in the supply will have immediate effect on Melexis. It's very difficult, therefore, to predict already now what the supply will be.
Yes. And I repeat, we are ramping up those new applications, those new products. And we know that the ramp-up is always a bit sensitive. That's why we want to be cautious.
So you don't see any inventory impact or demand-driven impact in the second half of the year. So it's really only supply that would justify the H2 implied outlook, if you know what I mean.
Yes. We don't see indeed -- for those innovative applications, we don't see demand reduction.
Okay. Thank you. The second question is on current sensors. I mean you have been talking about that for a while now. Can you help us understand how much is it as a percentage of your revenues, current sensors at the moment?
Yes. As I mentioned verbally, it has doubled if we compare '21 and '22. And it was indeed a small product line at the beginning and now the product line is growing. And it's, I would say, in the average of other product lines, but we don't give exact number, but it's for sure not a small product line anymore.
So is it like mid-single-digit percentage, high-single-digit percentage of revenues, low-single-digit still? Just trying to understand because it's obviously a very important driver for your growth. So I understand how big it is. So that's where we can have more visibility on this new product line.
Well, again, we don't give exact numbers on this. But yes, actually, overall, yes, the electrification products is a substantial part, but then that's more than current alone. So there, we speak of a very important portion already of Melexis. But again, we don't want to give, and then I'm talking of the motor drivers and other application like X, Y, Y-ish type of applications. If you take this into account, you come at least 30% of our sales.
Okay. Great. And maybe last one for me, if I may. On the OpEx; OpEx has been quite high this quarter. I mean is it a new run rate or any one-off in this OpEx? Just trying to model for the year.
Yes. There is the wage inflation that is -- or inflation in general, but certainly wage inflation that had the full impact for the first time in Q4. There are a few exceptional items as well. So it could be that Q1 is again a bit lower. But on the other hand, yes, we plan to do volume hiring for R&D. So yes, in that respect, throughout the year, we expect R&D as we managed to execute. So it's R&D to further go up first versus Q4 as a percentage of sales. But at the beginning of the year, it might still be a bit lower.
Okay. Thank you very much. I will go back to the queue. Thank you.
And our next question comes from Marc Hesselink from ING. Please go ahead.
Yes. Thank you. First question, the ICs per car for Melexis, stable at 18. Can you maybe explain a little bit what's behind there? Is that the shift in maybe a little bit less premium cars? The shift was maybe linked to that, how many ICs does Melexis have in electrical vehicle?
Yes. In fact, last year, it was a bit less than 18. It has been rounded up to 18. This year is a bit more than 18. And we keep it, that's why we mentioned 18 plus because we have almost 1 IC per car more versus last year. In fact, indeed, our revenue has grown by 30%. But those 30% were due to some dollar effects on price inflation. We have improved the product mix, thanks to the allocation. And then, in terms of volume, the cash sales volume has increased, and our content growth has increased. It's why out of those 30%, only part of it is really a volume growth or content growth, and this is corresponding to a bit less than IC per car.
Looking forward on electric vehicles, are you above that 18-plus level or is it probably similar?
I would say in general, yes, because in the electric vehicle, there is the electrification aspect of the vehicle, but also those vehicles come with a much modern platform. And the much modern platform also contains much more comfort and safety application with a lot of electronic. Then I would say, in total, the electric vehicle is much more than 18 IC per car. If you remember last year or the year before, we mentioned some IC per car for some modern car like the Tesla or the EQS, and we were, yes, 40 plus in such a car. And it is because the electrification is coming with a more modern platform. Overall, the car is much more modern, meaning with much more electronic.
Okay. Then the second question I have is on the long-term agreements of the forecasted revenue growth. How much of that is on those long-term agreements?
I think we mentioned last time that the long-term agreement was for half of the volume.
And that's still the case.
It's still the case, yes. Yes, we have added some long-term agreements recently, but it does not change really the needle. I think, overall, it's 50%.
Okay. Thanks. And final question, in the growth guidance, sorry to miss this, how much of that is a price component? How much is for raw material price?
I would say it's very low double-digit.
Okay. Clear. Thank you.
Thank you. We will now move to our next question from Guy Sips from KBC Securities. Please go ahead.
Yes. Few questions from my side. First on non-automotive. Can you give some color on that segment?
Yes. I would say that the situation is similar to the previous quarter. We have 10% of the revenue, which is related to the non-automotive. And, yes, I would say there are 2 reasons why it does not increase. The first reason is linked to the allocation. During the full '22, we have always given clarity to the automotive business, meaning that we have, let's say, derived some wafers from non-automotive to automotive customers. This is one aspect. And the second aspect, which came throughout the end of the year, is indeed we have also seen some reduction of demand for the non-automotive which was healthier for us because we have been able to derive even more wafers to the automotive business. And then, all in all, the 10% remains stable throughout the year.
And as automotive is stable or still growing in a quite difficult climate for other semiconductor segments, do you see new kids on the block are still the usual suspects in the competitive landscape?
I would say the usual suspect, yes.
Design win was very strong in '22, so from that, perhaps --
Yes. Already in '21, the design win was very strong, and we were wondering can we beat '21, but we have beaten '21 largely in '22. But it was a very strong design win.
And last question is on this trend, like you benefit from electrification at a user experience. Which of these trends do you expect to be more important in the shorter run and which will be more, let's say, for 3 to 5 years out?
If we look, let's say, the projection of the growth for the next 5 years, let's say, clearly, the highest growth is coming from the electrification of the car. I think, yes, IHS, for example, expect that between 2022 and 2027, the CAGR will be 28% for the electric vehicle, and this is for sure the highest contributor and then the premiumization is the second one in terms of contribution. And the ADAS, I would say, 5 years ago, the goal was to reach Level 5 in ADAS. But now I think everybody is much more modest. Level 5 is not for the near future, but we see that more and more cars are moving to Level 2 and to Level 3, which is also good for Melexis because to reach Level 2 or Level 3, you need much accurate products. You need also a product with more safety. Sometimes to create the safety, you need also 2 products in parallel. Then I would say this is the third in terms of contribution.
Okay. Thank you.
And our next question comes from Robert Sanders from Deutsche Bank. Please go ahead.
Yes. Hi, good morning. I guess my first question would just be around the Malaysia fab issues that X-FAB experienced. Did that affect you in Q4 or Q1? And would your revenue have been significantly higher or was it not that material? And I have few follow-ups.
Yes. In fact, indeed, you are right. Our supply in Q1 is affected by this problem. And this problem happens, I think in October. And given the supply chain lead time, in Q1, we have some supply limitation due to this problem.
Does that mean your lead time has got longer?
No. It's not a problem of lead time. It's really a problem of lack of supply.
No. I mean lead time for your products in the market, in the channel.
Yes. In a way, yes, because we have received less. I mean the supply chain was a bit empty at one point in time, then it creates some delay in the overall supply chain.
Okay. Just coming back to a previous question regarding the contribution of price to the growth in 2023. I just want to clarify what you meant by; did you say low double-digit? So pricing is up low double-digit, very low double-digit. Is that what you meant or something else?
Yes. It's indeed around 10%, I meant.
Okay. So if you're guiding in the teens, then 2/3rds is driven by price. Am I interpreting that the correct way, yes?
Yes.
Okay. So more than half. Okay. And then, in terms of LTA enforcement, obviously, there's going to be a challenge going forward when we have this correction in 2024. So X-FAB has been very clear that they will strictly enforce LTAs. How does it feel for you guys in terms of strictly enforcing take-or-pay type terms? Is it a bit more tricky for you guys given that some of your competitors will have better supply than you and will likely start undercutting you? Or is this something and will you enforce these LTAs strictly in 2024?
You mean we enforce to our customers or to our --
Yes. With your customers, will you insist on pre-agreed pricing under contract? Or do you think that given that, that's a repeated negotiation that you may have to give ground on some of these pre-agreed terms?
I think that the LTA is the new reference, meaning that we have indeed LTA with our suppliers. We have LTA with our customers, and this will be the reference in any discussion, I would say, for the next 2 years. And yes, the LTA that we have agreed with our customers are fully synchronized with the LTA that we have agreed with our suppliers, meaning that we have a good balance in between. And we feel comfortable, let's say, on this side.
Last question, just on current sensors. Who was driving the decision to choose your sensors over another? Is it typically the OEM? Or is it typically Tier-1s like, I don't know, Vitesco or something like that? What is the typical situation that gets you designed in the OEM-led or Tier-1 led?
I would say we have a mixed situation because, indeed, some OEM want to control directly the IC supplier. Then for some of the OEM, we have a direct contact with them and they define themselves the current sensors that they need because they want to control the overall electric per train. We have other case which is more the traditional case where indeed it's the Tier-1 who designed the current sensor. The modern OEM has a direct contact with Melexis.
Got it. And there's no role for reference designs from other companies like larger semiconductor companies like ADI or NXP in terms of --
No.
It's a separate decision point. Okay. Thank you very much.
Our next question comes from Sandeep Deshpande from JPMorgan. Please go ahead.
Yes. Hi. Thanks for letting me on. I am just trying to understand. I mean you've had 2 consecutive years of 25%, approximately 30% growth. And you're guiding to this year where 2/3rds of the growth is coming from price. How was the pricing in the last 2 years? And can this kind of pricing trajectory be sustained?
Yes. For sure, a good and important question. Yes, indeed, we said last year, the price increase was high-single-digit. This year, it's a bit similar. Yes, I think as a matter of fact, those price increases are linked to investment. The overall volume needed for the electronic of the car is increasing. And in order to finance those volume increase, we need to increase the price. And the main reason of the price increase, there is indeed the inflation, as Karen mentioned. But most important is the need for investment in order to be able to cope with the volume required by the automotive industry.
But is this not different from the investment -- why is this different from the investments you were making in the last 10 years as such, really? I mean when one looks at your spending over the last 10 years, clearly at the moment, maybe you're spending say, €70 million. But you were spending €70 million in some years even in, say, 2018, you spend 50 -- average of €50 million before. So it's not a big change in the spending.
But there is -- the big change versus, let's say, 5 years ago or 10 years ago is that there is no available capacity. All the capacity is used by --
At the fab.
Yes. All the capacity in the fab is used by the industry. And now we need to --
So I mean maybe the question to ask is, as the capacity ramps up, we can see, I mean in terms of the companies, they're getting very strong orders. As the capacity ramps up, will this pricing change? Because I mean, normally, with cyclicality in the semiconductor industry, I mean the industry has held capacity very tightly over the last decade. And now it's spending a lot of money on capacity. Normally, it goes the other way. And does that have a risk to pricing or it doesn't have a risk to pricing?
First to finish the answer to the previous question, it's not only our investment. It's really also the investment of the overall supply chain of our suppliers. And there is now really a big shortage at the supplier side. This big shortage did not exist 5 years ago and that's why the investment is key. I mean we cannot move without those investments, and those investments must be financed.
Okay. Thank you.
And our next question comes from [indiscernible]. Please go ahead.
Hi, good morning. Thanks for taking my question. I wanted to linger for a second on the R&D expenses. They came slightly higher than expected. I was wondering if you could share some insight on where that money is going, what you are cooking up?
What products we are working on or is that your question?
Yes. What products are you investing in right now?
We have over 10 product lines. It's spread over the product line, but we did make some -- we put attention relatively speaking more on the electrification, the big growth drivers, like, for instance, current sensors proportionately. There, we plan to increase even more than what we do today. So it's an ongoing process. It's not something that is just in Q4. This will continue over the next quarters with proportionally more going into the high-growth drivers like what Marc already mentioned.
Yes. I mean the current sensors, embedded drivers for the thermal management because thermal management is really key for the electric car, thermal management of the cabin. But what is new is the thermal management of the engine or the battery. And we need to heat up the battery in winter and we need to cool down the battery in summer. And this thermal management requires specific products for Melexis. This is the position sensors and the embedded drivers. And as Karen mentioned, the investments are also related to those thermal management products for the electric car.
Okay. Thanks. And then, maybe second and last question from my side. It's on dividend policy, you're paying out more than last year. I was just wondering if this is like a template for years to come, what your policy is on the dividend side.
We don't have a written policy, but we have history. The dividend as the past has shown, we've always paid out a high percentage of the profit to the shareholders. That's what we did now as well. Yes. So with growth in profits, we also increased the dividend basically.
Okay. That's very clear. Thank you.
Yes. It's in line with the profit growth.
Thank you. [Operator Instructions] And our next question comes from Michael Roeg from Degroof Petercam. Please go ahead.
Yes. Good morning. First question I have is on your average selling price. It went up by 16%, and about 5% from that is from currency. So that leaves 11% for price mix. Did I hear it correctly that your price increases last year were about 8%, 9%?
Correct. And indeed, there is also another component that influences the average selling price, and that is the product mix. When there is supply constraint, you try to maximize sales and profit per wafer. And that's the effect you see there as well. So supply constraint has made us take decisions to rather favor more -- to have more sales per base basically.
Okay. And you also commented that you shifted some wafer allocation to automotive which has higher ASPs. What are your plans for 2023 with respect to the wafer allocation, the same mix as last year or will you push even more towards automotive versus the other segments?
I would say for the moment, we assume more or less the same of the mix.
Yes.
Okay. Good. And the second question I have is, there's currently a price war going on in electric vehicles in the U.S. and China. And that may be good or bad, it depends on the reason for the price war, if it's because of slowing demand or because of too many factories not being fully utilized, et cetera. But lower prices are generally bad for profits and may give some pushback on pricing. Can you give us your view on what's happening and what kind of feedback you get from your clients in electric vehicles?
Yes. I would say for the time being and especially for the client with electric vehicle, we discuss much more about allocation and supply than about price. For those kind of products, we still have a supply challenge and not a price challenge.
Okay. And the reasoning for this price war is this -- the feedback you get on that is that simply to gain market share or to fill idle capacity? Anything to say about that?
No, I have no clue. I don't have insight.
Okay. Yes, well, it started only recently. So perhaps next quarter, there will be more insights. Good. That's it from my side. Thank you.
And we will now take our next question from Robert Sanders from Deutsche Bank.
Sorry, just a quick follow-up. So you're saying you're going to grow 13.5% at the midpoint and pricing is going to grow in the low teens. So your units are not really growing at all despite X-FAB's significant capacity expansion. So what is going on there? It doesn't seem to make sense. And given that you've got supply constraint, I mean you're now growing units in line with automotive production. So are you constraining, I mean, you're basically having to prioritize strategic products over others. I mean to put it another way, what is your unconstrained revenue guide in 2023?
I mean, yes, it's difficult to disclose this. Yes, for the time being, indeed, we have been a bit cautious, especially on the low-end of the guidance because of those supply aspects. But yes, for sure, the order book is much higher than what we have guided.
Yes. We had a mismatch of 20%, 30% in '22. For many of these products, it's still ongoing like that.
So sorry, you have a mismatch between demand and supply of 20% to 30% and that continues.
That was clearly in '22, the case.
Okay. So unconstrained demand is 20%, 30% above your ability --
Well, it's difficult to say because there is more -- where it was across the full line in '22. Now some products there, it's very much constrained, others not.
Yes. I think we have some headwinds, and we have some tailwind. The tailwind is what we described, the premiumization, the electrification, the ADAS, those are all tailwinds. But yes, the headwinds are also what we know in terms of geopolitical aspect, the fact that the world become complex, the fact that the supply is very, very limited and still a big challenge. That's why we believe that the guidance is a good balance between the headwind and the tailwind.
So to put it another way, the number of escalation calls you are getting is not less than it was 6 months ago. If anything, it's going up because you are still massively constrained.
I think for the innovative products, for the innovative application, meaning electrification, comfort and safety, the number of escalation call did not reduce indeed, yes. But as I mentioned verbally for the other type of application, I think we are moving to a healthier balance between supply and demand.
Okay. Thanks a lot.
[Operator Instructions]. As there are no further questions in the queue, I'd like to hand the call back over to Mr. Marc Biron for any additional or closing remarks. Over to you, sir.
Thank you. Thank you for the discussions. I think it's always important to get a good challenging question because it helps us to stay at the top of the wave. And we are going to meet you again in April for the Q1 results. Thank you.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.