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Good afternoon, ladies and gentlemen, and welcome to the conference call regarding Q3 2021 results of AIXTRON SE. [Operator Instructions] Let's now turn the floor over to your host, Mr. Guido Pickert.
Thank you, operator. Welcome to our presentation of the Q3 and 9-month figures. I'd like to welcome our CEO, Dr. Felix Grawert; our CFO, Christian Danninger. As the operator indicated, this call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of our safe harbor statements, which can be found on Page 2 of our results presentation slide deck as it applies throughout the conference call.This call is not being immediately presented via webcast or any other medium. However, we will place an audio file of the recording or a transcript on our website at some point after the call. I would now like to hand you over to Felix Grawert for opening remarks. Felix?
Thank you, Guido. Let me welcome you all to our third quarter 2021 results presentation. I will start with an overview of the highlights in this quarter and then hand over to Christian for more details on our 9 months 2021 figure. Finally, I will give you an update on the development of our business as well as our guidance for the year.Let me start by giving you an overview of the key developments in Q3 on Slide 2. During Q3 2021, we saw another quarter of strong order momentum throughout all our businesses, well balanced across applications. Gallium nitride power was the strongest contributor, but also wireless and optical data communication, LED and lasers had sizable contribution. Overall, orders in Q3 came in at EUR 114 million. Revenues developed as expected. At EUR 131 million, we were almost twice the figure we have recorded in Q2. We expect the revenue figures in Q4 to again be higher than the revenues we have recorded in Q3, and we are on track with respect to that value for Q4. Q3 gross margin was at 43% and Q3 EBIT margin was at 28%. Both are also developing as expected. So overall, we are on track to deliver the full year order, revenue and margin as we have guided to the mineral market.Now let me give you a quick update on the COVID-19 situation at AIXTRON. At AIXTRON, we have had no serious COVID cases, which is very good news. As more and more people have been vaccinated and continue to take advantage of our offer to get tested, we continue to see no disruption in any of the functions of our business.Now I will be handing over to our CFO, Christian Danninger. He will take you through the financials of Q3 and the 9-month period. Christian?
It really is a pleasure to present these great results. Starting on Slide 3 with our income statement. As expected, total revenue for the 9-month period was EUR 248 million compared with EUR 161 million in 9 months '21. In the sequential quarterly comparison, revenue increased to EUR 321 million, almost doubled compared to the previous quarter. Year-over-year, gross margin of 41% in the first 9 months was 2 percentage points higher. In Q3 '21, gross margin was 43% compared to 41% in the previous quarter. The difference is mainly due to a higher share of products shipped with better margins in Q3 than Q2 of '21.Operating expenses in the quarter increased from EUR 53 million in 9 months '20 to EUR 60 million in '21. This difference primarily comes from 2 special effects. First, in H1 '21, we incurred restructuring costs for APEVA in the amount of approximately EUR 3 million. While in the previous year, a change of use for production facility led to other operating income of EUR 3 million.Furthermore, we incurred higher variable compensation and R&D spending primarily for the development of our next-generation MOCVD tools. SG&A expenses of EUR 25 million in 9 months -- in first 9 months of '21 were EUR 4 million higher year-over-year, influenced by higher variable compensation and cable related restructuring costs.R&D expenses in the first 9 months remained roughly stable at EUR 40 million compared to the same period in the prior year. This reflects, on one hand, lower running costs for the OLED technology, as we have indicated previously, which were, on the other hand, offset by increasing expenses for next-generation -- for our next-generation MOCVD equipment.During the first 9 months of '21, we recorded a net other operating income of EUR 6 million, which was below the EUR 9 million recorded a year before. This difference is, as mentioned before, to a large degree due to that already mentioned change of use of our production facility, which resulted in the other operating income of EUR 3 million in the prior year.In the first 9 months, EBIT was EUR 41 million at a margin of 17% versus an EBIT of EUR 10 million at a 6% margin in 2020. This was mainly due to the year-over-year increase in revenues and corresponding profit. In Q3 '21, we had an EBIT of EUR 36 million and an EBIT margin of 28% for the quarter compared to EUR 6 million in Q2 '21. This shows the strong leverage effect we have on revenue volume translating into bottom line earnings. Primarily, thanks to the mentioned volume and margin effects, we generated a net profit of EUR 43 million in the first 9 months of '21 compared with EUR 10 million in the same period of 2020. This development was also influenced by the capitalization of deferred tax assets on net loss carried forward in the first half of '21 in the amount of EUR 8 million. In Q3, the tax expense of almost EUR 5 million was incurred and no change in deferred tax assets was recorded.Turning to the balance sheet on the next slide. In line with the expected output, inventories have risen to EUR 137 million from EUR 79 million at the end of 2020. Advanced payments received from customers increased to EUR 86 million from EUR 51 million at the end of 2020. This represents about 32% of decline.Our cash balance included -- including other financial assets and post our EUR 12 million dividend payment in May increased to EUR 330 million at the end of the quarter from EUR 310 million at the end of 2020. Please note that we achieved the financial assets in the amount of EUR 60 million from noncurrent assets to current assets as of June 30 due to a shorter remaining maturity of the respective financial instruments.Moving to Slide 5, which shows our cash flow segment. Mainly due to the buildup of inventories in line with our planned output as well as due to higher CapEx into our next-generation MOCVD tools for our laboratories, free cash flow in the third quarter was EUR 90 million negative. Mainly due to the positive results, free cash flow for the 9-month period of '21 was a positive EUR 27 million.With that, let me hand you back over to Felix. Felix?
Thank you, Christian. Before concluding with the outlook for the rest of this year, I would like now to give you a quick update on the key developments in our addressed markets. In all of our addressed end markets, we continue to see strong momentum. In the market for gallium nitride power electronics, our customers are adding production capacity to expand into more and more areas of power electronics, which are today still dominated by Silica. We currently see an expanding of the well-established 650 Volt devices into additional applications, such as highly efficient power supplies for data centers and telecom base stations.In addition, you see that gallium nitride is making inroads into the automotive market, which is quite a milestone considering the higher reliability requirement. With the first 650 Volt GaN devices being used in the onboard chargers for electric vehicles now. Beyond this, lower voltage devices of gallium nitride are about to be introduced in the market covering applications such as low-speed electric vehicles and some motor drive application. Overall, we can state that we are at the beginning of a broadening GaN adoption. This makes us confident that with GaN power, we are at the start of a multiyear growth cycle.In silicon carbide, we see the market growing rapidly, driven by the fast adoption of electric vehicle. All major car makers have plans to go fully electric with large shares of the future, and it has become industry consensus that the MOSFET in verge of these cars will be made by the silicon carbide. As a result, all players in the industry are expanding capacity so far on 6-inch wafer. The industry is looking towards the usage of 8-inch wafer, once available at required volume at reasonable cost.On our side, at AIXTRON, we are in close contact with all industry players. We continue to win additional customers and are in follow-on discussions with those who still use tools of other vendors today. Looking now beyond power electronics, we see continued strong demand from customers addressing the communications market, both from wireless and from optical data communication, both driven by the 5G build-out. For the whole year, this might roughly constitute 1/4 of our order intake, and we see the momentum continuing.Finally, also the momentum for LED applications remained strong. As for order intake and revenues, this is in 2021, mostly driven by the traditional red- orange-yellow LED, which are used in fine pitch LEDS, but also in horticulture applications such as indoor farm. At the same time, we are in close collaboration with a number of customers in the area of micro-LED development, and we see ourselves very well positioned to benefit from the commercialization of micro-LED display. However, we see this application still a bit further away from volume run, which might happen from 2023 onwards.You can see that we enjoy a very positive demand momentum from our addressed market. Worldwide, all of us observed significant strain on supply chain and delivery time as evidenced by the current use flow. At AIXTRON, the situation of the supply chain is tense but stable. We have had no major supply chain issues, unlike other industries, which even had to reduced shipment volume. The tense supply situation has rather resulted in individual short-term issues here or there when part from a single supplier arrived a few weeks later than desired. Such 6 pickups had resulted in slight delays in individual cases, but has not affected our overall shipment situation. We continue to watch the development of the global supply situation very carefully, and we remain to be ready to take measures if necessary.With that, let me move to our guidance on Slide 6. We confirm our guidance as we are on track to produce and deliver the required number of tools during the final quarter of the year. This means that we confirm the numbers communicated earlier. We had guided for orders to be between EUR 440 million and EUR 480 million. Revenues are expected in the range of EUR 400 million to EUR 440 million, with an EBIT margin between 20% and 22% of revenues. We expect our gross margin to be around 40% of revenues.In summary, we are looking forward to conclude a growth year 2021. Overall, we are on a path of strong momentum driven by multiple end markets, and we see the trend fully intact as of now and beyond 2021.With that, I will pass it back to Guido before we take questions.
Thank you very much, Felix and Christian. Operator, we will now take questions, please.
[Operator Instructions] And the first questioner is Mr. Stephane Houri of ODDO BHF.
[Technical Difficulty]
Mr. Houri, we cannot hear you. [Operator Instructions] Mr. Pickert, can you hear us?
Yes, please start.
The next question comes from Mr. Uwe Schupp of Deutsche Bank.
3 questions, if I may. The first 2 for Felix and last 1 for Christian. Felix, just firstly, on the Q4 order outlook. Now obviously, if we take the midpoint, it would imply a fairly steep decline in Q4. We know you're cautious, but by the front of the markets are developing in the right direction and quote inquiries look still rather healthy. So is the EUR 18 million or so quarterly bookings rate for Q4, something that you would like -- that you would like to imply? Or is it also possible that we are seeing rather the upper end of that guidance based on what you're seeing today?Then secondly, somewhat related to that, but really a bigger question, if that's okay. On the longer-term order outlook. I mean, you joined AIXTRON, I think, a little over 4 years ago. And during most of that period, I remember us talking in those calls whether orders will be EUR 50 million, EUR 60 million or EUR 70 million. In other words, mid- to higher double digits, maybe. I was just wondering whether structurally, you thought that this number has increased and the water got deeper underneath you, so to speak, because of that sheer breadth of applications that you're seeing going forward? And then the last question, just on the housekeeping front, Christian, can you give us an idea about the tax rate? You mentioned these deferred tax assets that you are now building for this year and possibly also next year.
Let me get started with the first 2. So the first question, I understand whether you could imagine -- whether we could imagine that the order intake will lead us to be on the upper end of the guidance. This is clearly possible. We very much, as mentioned, see that there is strong momentum, and we clearly see that this order momentum, which we have seen in the first 3 quarters of 2021, we would very much expect to continue on a high level also in the fourth quarter of 2021, yes, that automatically gets us to the upper end of the guidance or beyond, yes. That's very clear what we have in mind. And I would also bring that short-term fourth quarter outlook related to your second question, which I took whether we could imagine on a longer-term horizon, whether the order intake, the demand structure and with that, of course, obviously, with 6 months delay, the revenue structure has changed. I would clearly also say that, yes, the water got deeper and as you nicely put in your question, we do see that the market that we have served on the Optoelectronics side continue to be strong. And so on a level where we have seen it in the past years. We continue to have a strong demand on the labor side, on the communication side. We continue to see strong momentum on the Optoelectronics side with respect to the red-orange-yellow, the ROY LEDs out of gallium arsenide, so that is continuing. And on top of that, which leaves us structurally to a higher level -- on top of that, we now see a continued momentum on the gallium nitride side. And as I indicated a bit in my speech, the gallium nitride has matched with 1 application and is now broadening to multiple other applications and the adoption in the market continues, and that gives us the confidence that the gallium nitride topic is not there for just 2 or 3 quarters and then disappearing again.But as gallium nitride is a continued level of demand, which has really come on top of the level that we've seen before, and that lifts us, so to say, structure in the higher level that we see right now and that we would expect also to continue then in the next quarters to come. With that, Christian, maybe to the last question of Uwe Schupp?
Yes. Thanks for handing over. As indicated in the past, I would recommend to model with a 15% tax rate going forward, taking into account the consumption of our tax loss carryforward. And there's not much more to say, it's pretty consistent as we have indicated in the past.
And the next question comes from Mr. Johannes Ries of Apus Capital.
Can you hear me?
Very well.
Okay. Maybe a follow-on question to Uwe. Gallium nitride, you see some deceleration maybe in Q3 and Q4 in the order intake, which was on the other hand quite strong in the first 2 quarters. For what of your end market is coming is that you maybe gallium nitride, there was maybe -- first maybe a big push and now some of the new -- attached with new entrants has first maybe installed their machines and say need maybe next -- for next quarter, not newborns is -- because the gallium nitride market is growing, but it's still quite small. Right in my head, it's below EUR 100 million or so, much smaller since its release in capital markets. Therefore, how you see the development in gallium nitride, you mentioned it with some remarks before, but a little bit concrete. Is there maybe a dip into the market before it picks up again? Or do you think it steadily developing?
I think it's steadily developing. As you indicate, I would not call it a deceleration. I would rather call it a slight seasonal variation, as we always have seen, 10%, 15%, 20% quarter-over-quarter up and down is always possible, like waves on the ocean. I would not see any deceleration or digestion or decline or whatever, I think with a good trend, which will continue and last.
And you are clear by far the leading supplier of the machines for the gallium nitride market?
Very clear.
On the otherwise, you are a follow-up in the silicon carbide market. Can you give us some more maybe information about your success. So you mentioned you have some orders in contact with all -- some major customers. When could we see maybe more traction if you really catch up to your major competitors, especially Tokyo Electron?
Silicon carbide, I think, is another very interesting growth market for us. In silicon carbide, we currently see that the market is massively broadening. This is driven by the adoption of electric vehicles, which is now heavily happening. As we remember 2 years ago, electric vehicles by the German car industry was like exotic and now many car makers have indicated that there will be clear stop and end of combustion engines, everything sounds electric. And it's clear that the main inverter, in some cases, also the DC to DC inverter will be made out of silicon carbide. That brings with it that in the market, in addition to the established players, a lot of new entrants are entering that market.These new entrants, not having any, so to say, legacy, but with open eyes and looking at the tool collection and we have quite successfully made an entry with these new entrants in the last couple of months. In addition to that, as I indicated, the 8-inch transition is approaching with the next 1, 2, 3 years, depending on the company and the players, some are faster, some slower. And this transition is opening up windows again. So with that, we can say that we continue to win customers and accounts. And we are in contact with all the others who are not yet our customers, but there is market windows driven by the technical changes, wafer size changes in the market, which we clearly want to utilize in order to even broaden our customer base. I would say it's a good market.
Remind us very quickly, what is the advantage of your machine compared to the established?
Lower cost of ownership, and higher productivity per wafer.
And that's definitely the thing which accounts in the 7 industry.
And the next questioner is Mr. Malte Schaumann of Warburg Research.
First one to follow-up on the order level. I mean, we implied full guidance at the low end calls for something like EUR 60 million, EUR 65 million, which is more or less half of the -- of what you posted in the last quarter. So where does this really come from? Or what -- why did you not increase the guidance? You really see the risk that orders could come in so low? Or is that rather, that was the guidance and thus remained stable. So what are your thoughts around that?
That lower end is out of range. So as I indicated, we clearly see it towards the upper range because there's trends, which continue to be at work, and we see them continuing also in the fourth quarter and beyond.
Yes. Exactly. Okay. Good. Then on the G&A level, I mean, it was mentioned that a lot of variable costs was driving G&A higher this year. Is that kind of sustainable loss, but how much of that is linked to the share price so and then -- yes, not a fixed position -- kind of fixed position then going into next year?
Did I get your question about the SG&A level?
SG&A costs that increased quite strongly this year. How much of that is kind of sustainable going into 2022? Or how much of that might relate to the share price increase?
I think we are overall in a very low level, right, Christian? Can you - do you have number to add?
Yes. I think we are, overall, relatively consistent. We had some restructuring expenses in. We have some variable compensation increasing. But overall, I don't see a strong increase going forward. We are on a relatively stable level there. Despite the significant increase in revenue volumes, if you compare to a few years back compared to 2020 level, we are on a relatively stable level here. So there's no reason for concern.
Last question is regarding time frame, timing for -- you just talk about the opportunity for customer adoption of the year for silicon carbide. What are your thoughts about what are the upcoming perfect time frame when your tool market adopted by customers, new clients?
So what we see is that in 2022, meaning in next year, typically, we will receive an order, and it takes between 6 and 9 months between the order intake and the shipment of the tool, then it takes roughly 2 months for the tool to be installed. As I just mentioned, we have been winning a number of new customers. But these new customers have placed orders either in, let's say, in the second half of 2021, so they have placed or they are about to place an order that means the tool is first tool to these customers is being shipped.Let's say, in the first half or let's say, in the Q2 of the next year, 2022, the customer has been working with our tools, developing something on the tool quality with their customers. And then the customer can make a decision towards, let's say, the second half of 2022, that their product is ready, it's developed, it's finished. And then the customer goes into volume production, places an order at the end of '22 and in terms of volume production that translate into revenues in 2023. So we would see some volume in '22 and significant volume in '23. And I think it derives how that comes together as a timing sequence.
Mr. Houri wants to raise his question.
Yes, I had a quick question about 2022. I wanted to have your view on what you can expect for next year. I know you're not guiding for the moment. Of course, it's too early, but can we expect a year of growth? And if yes, what can you share with us as a trigger for growth next year? That would be my first question.
Good question at this point in time of the year. I think you can see that with a very strong order backlog at this point in time, which gives us a good start into 2022. It indicates a good first half year in '22. And what I also mentioned is that we see ourselves elevated at a higher level of order intake. Yes, we have seen it in the last quarters. And as I mentioned before in this call, we expect such a level of order intake to continue. And if you add these things up, then you will see that '22 will be a very strong year for us again.
Okay. Okay. And when you talk about GaN, basically, I heard you said not just here, but another occasion that, again, a multiple application and notably your fast-charging application. But that fast charging application with what you were about to deliver was kind of completed as an opportunity and that you had to wait, let's say, for the next opportunities that you have listed, the servers, telecom, et cetera. So do you think there will be a kind of linearity and that the next opportunities will start very soon? Because otherwise, you may have a kind of application -- in GaN applications?
Yes, definitely. I think this is all happening at the same point in time. The fast adoption, as you have indicated, the first application that really went into revenue was the fast charging, that's consumer electronics. And we know consumer electronics is very fast lift. There is a new idea, trend, it happens very fast. It comes. But at the same time, we really see now that GaN is being adopted in the high-power application, servers, data centers, telecom-based stations. It starts now in automotive, you may have seen BMW made a press announcement about gallium nitride device has been used in the onboard charger in the car and so on. So these applications, the additional applications were all happening right now translating into revenue of our customers and translating into follow-on orders that come to AIXTRON right now.
Next, we have Mr. Jürgen Wagner of Stifel.
As a follow-up to the GaN question so far, yes, you mentioned the broadening and that you receive follow-up orders. What is your assumption on how many deposition tools for GaN production are needed, let's say, until 2025? Why '25 because Infinium last month at their Capital Markets Day gave us a market forecast of USD 800 million in 2025. So the question basically is how many machines would be needed to serve this market, if you take that as a base case?
Yes, I think we can expect something within 50 and 72 weeks per year, yes. So you can then add it up, multiply it out. Nevertheless, that number is, of course, based on the applications that are visible today. And we see our customers opening up new applications and being creative. So I could very well be that in 1 year or in 2 years, we talk about an even broader base depending how creative our customers are. Now for example, there are several customers of ours who are looking and not only to apply gallium nitride in the voltage classes up to 600, but we need to go all the way to 900 or even to 1,700 volts. And there is some ideas in the market to use gallium nitride to attack silicon carbide from the low end there and who knows where that plays out. Yes. It could be the case that at some point, gallium nitride even takes over some part of that market.
And who would be a competitor for those tools for you?
So today, we are in a unique situation that there is no real competitor. However, a market that's developing fast, a market that is big and even growing, of course, will attract competition. So we stay huge, and we see who is coming and who potentially might have a good tool. So we stay very much on the watch for that.
And second question would be on silicon carbide. How many tools are in your order intake in Q3 and your order backlog end of Q3?
Honestly, I don't have the number. I think we don't have it.
And you haven't mentioned it in your prepared remarks, but there are some orders, right?
Yes. Well, thank you very much. With this, I would like to conclude today's call. Thanks to all of you for attending and dialing in. Please note that our next earnings call for our full year 2021 results, including our 2022 guidance will be on February 24, 2022. In between that, we will be in contact, I'm sure. Thank you, and bye-bye.