Elmos Semiconductor SE

XETRA:ELG

Earnings Call Analysis

Elmos Posts Record Q3 Sales and Confirms 2023 Outlook

Elmos Semiconductor SE reported a record-setting third quarter, with sales reaching EUR 151.5 million, a EUR 32 million year-over-year increase, marking the 11th straight quarter of sales growth. The growth rate stood at 27% year-over-year and 11% over the previous quarter. The Q3 EBIT surged by 40% to EUR 41.6 million, bringing the EBIT margin up by 2.6 percentage points to 27.5%. Despite a negative adjusted free cash flow of EUR 3.3 million, a EUR 37.2 million payment from the sale of their wafer fab led to a positive adjusted free cash flow of EUR 33.9 million and a reduced net debt of EUR 43.8 million. Elmos holds steady on its 2023 full year sales forecast of over EUR 560 million and an EBIT margin expected at 25%, plus or minus 2 percentage points, depicting a robust growth trajectory amid global market uncertainties.

Navigating a Successful Quarter Amid Geopolitical Unrest

Elmos Semiconductor's third quarter marked another period of successful growth, despite the backdrop of fresh geopolitical concerns raised by conflicts in Ukraine and the Middle East. CEO Dr. Arne Schneider highlighted these challenges, yet reassured stakeholders and investors that the company remains unaffected in its operations, as its business does not directly engage with the affected regions.

Strategic Sale Paves Way for a Fabless Future

A major corporate development came with the strategic sale of Elmos's wafer fabrication operation to Littelfuse, fetching a payment of EUR 37 million in Q3. The full transaction is set to culminate with an additional EUR 56 million by the year's end. This move will not only streamline Elmos's operations by turning the company fabless but is also expected to inject innovation, speed, and efficiency into its business model, offering a promising outlook for future growth.

Committing to Sustainability with Ambitious ESG Targets

Elmos has made its commitment to environmental, social, and governance (ESG) principles abundantly clear by setting ambitious targets for reducing its carbon footprint. By 2026, the company aims to cut greenhouse gas emissions from its activities (Scope 1 and 2) by 40% from 2022 levels, culminating in climate neutrality by 2035. These plans align with broader European sustainability goals and will likely appeal to increasingly ESG-focused investors.

Continuity and Confidence in Challenging Times

Despite a global economic environment rife with uncertainty and high inflation, Elmos expects the semiconductor supply chain, particularly in automotive applications, to stabilize by 2024. The company is confidently continuing its strategic initiatives and investment in testing capacities, banking on the resilient and growing demand for its innovative semiconductors as it outpaces its peers in the automotive semiconductor market.

Impressive Q3 Performance with Record Sales Growth

Elmos reported its 11th consecutive quarter of sales records, with a notable EUR 32 million year-over-year growth to EUR 151.5 million in Q3. The strong growth signifies a 27% increase from the previous year and an 11% jump from the last quarter. Furthermore, Q3 EBIT soared by 40% to EUR 41.6 million, with the EBIT margin expanding to 27.5%. This robust performance is a result of strong demand for Elmos's mixed-signal semiconductors and successful product ramp-ups.

Outlook for 2023: Strong Sales Growth With Cautious Cash Flow Projections

Elmos remains steadfast in its 2023 financial projections, aiming for over EUR 560 million in sales, denoting an over 25% year-over-year growth. The expected full-year EBIT margin stands at 25% (± 2%). The company anticipates capital expenditures to be about 19% (± 2%) of sales. However, due to the expanding testing capacities and strategic investments, Elmos predicts a negative operating adjusted free cash flow for the year.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Elmos Semiconductor SE conference call regarding the results of the third quarter 2023. [Operator Instructions] So let me now turn the floor over to your host, Dr. Arne Schneider, CEO.

[Arne Schneider, executive]

Good morning, ladies and gentlemen. Welcome to the Elmos Q3 conference call also from my side. I'm very happy to present to you today the highlights of another very successful quarter. And in addition, I have some exciting news to share about our ESG activities.

I would like to remind you that all relevant figures can be found in our investor presentation, which is available on our website. The audio recording of this conference call will also be available on our website shortly after. And of course, you have the opportunity to ask questions at the end of my presentation.

Unfortunately, I have to start my presentation with the latest geopolitical conflict, the war in the Middle East. Similar to the ongoing war in Ukraine, there are no direct effects for Elmos due to this latest escalation between Israel and the Hamas. We do not ship products to Israel nor do we have offices or relevant suppliers in these regions. We hope, of course, that the new conflict as well as the ongoing war in Ukraine will end as soon as possible and the people can live their lives in peace.

Now to a very positive topic. In August, the German Federal Ministry for Economic Affairs and Climate Action, the BMWK, and the German Federal Cartel Office, Bundeskartellamt, grant the approvals for the sale of the wafer fab to Littelfuse without any conditions. After the regulatory approvals, Elmos received a payment of EUR 37 million from Littelfuse in Q3 2023. The closing of the transaction with the transfer of the remaining purchase price of EUR 56 million is expected to be effective end of December '24.

With regulatory approvals, the path to a fabless company is now finally paved and we will become more innovative, we will become faster and we will become more efficient than ever before.

Ladies and gentlemen, as mentioned in the beginning, I would like to share some exciting news about the ESG activities that Elmos highlighted actually on Page 5 of our investor presentation. Since many years, sustainability is an important part of our corporate strategy, management processes and business goals. Our social and ecological responsibility is reflected in many activities and projects.

As you all may have noticed, we continuously make our efforts in this area even more transparent to all stakeholders. Our ESG team has compiled a large amount of ESG policies and KPIs, and I've noted these documents on our website. The latest project of our ESG team was the calculation of a comprehensive corporate carbon footprint, including Scope 1, 2 and 3. The calculation of the corporate carbon footprint is based on the international reporting standards, Greenhouse Gas Protocol. And this is the basis of all Elmos climate targets, which I'm happy to announce today.

Based on our future organizational structure, as a fabless company, we want to reduce the greenhouse gas emissions of our own activities, that means Scope 1 and 2, by 40% until the year 2026 compared to the base year 2024 -- '22. To achieve this significant reduction, we plan to lower our greenhouse gas emissions each year by 10% in the next 4 years. So then we reach minus 40% in 2026. And we want to become climate neutral for our own activities by 2035.

With these targets, we're supporting the European Green Deal, and we have defined specific activities to achieve these reduction targets. In addition to our own climate targets, we are encouraging our suppliers to reduce their own carbon emissions as well.

I won't go into more detail today because we will invite all of you interested in a special webcast on November 29 to learn more about ESG at Elmos. So we will soon send out a separate invitation and have this special ESG call for all that want to join. So please do join us. It's an interesting topic.

Let me continue with an update about the current market environment. The fiscal year 2023 will continue to be affected by many geopolitical crisis, economic uncertainties and high inflation. The allocation situation has further improved, and we believe that the supply and demand levels will be more or less normalized, at least in the course of 2024 latest.

For the remaining months of this year, we continue to execute our allocation plan with our customers and transition also back to the lead time based system for the next year. The demand for Elmos innovation continues to be very strong, and we are happy with the progression of our new design wins.

From an operational standpoint, we continue to focus on the preparation and execution of various ramp-ups in the second half of the year. The hard work of the Elmos ramp-up team and the targeted investments in the expansion of our test capacities are now paying off, underlined by the strong growth in Q3. With this growth momentum, we are clearly outperforming the automotive semi market and most of our peers this year.

So let's now have a closer look at the Q3 results. Once again, Elmos delivered a very impressive performance, I think, in the last quarter. Sales in Q3 increased by EUR 32 million year-over-year to EUR 151.5 million. This is the 11th consecutive quarterly sales record. Both the growth rate of plus 27% year-over-year and the increase versus the previous quarter of plus 11% underlines the momentum of the Elmos business.

Besides the ongoing high demand for our innovative mixed-signal semiconductors, the strong increase was driven by the various product ramps as mentioned.

Fueled by high growth and underproportional OpEx increase, Q3 EBIT rose by 40% to EUR 41.6 million compared to EUR 29.8 million 1 year ago. The EBIT margin further increased by 2.6 percentage points year-over-year to now 27.5%.

In the last quarter, we continue to invest in the expansion of our testing capacities as explained. We have invested another EUR 34 million in Q3 after the record spending of EUR 42 million in the second quarter. Our investing program is a key element of our growth strategy and some of the invests we've seen now were really just in time when we needed them now to get the growth going. So this provides us also with capacity for future growth. And by the way, of course, you ask, I can tell you now, and there will not be that much investment in Q4.

Due to the ongoing high CapEx level and increasing working capital for the product ramps, and without proceeds from the fab sales, the operating adjusted free cash flow, so operating cash flow, and we always use adjusted for the other assets, was slightly negative at minus EUR 3.3 million in Q3. However, including the payment of EUR 37.2 million for the sale of the wafer fab, the adjusted free cash flow totaled plus EUR 33.9 million in Q3. Due to the positive free cash flow, Elmos recorded a lower net debt position of now EUR 43.8 million at the end of the third quarter.

So now, I come to the outlook for the year. According to the latest IHS light vehicle production forecast, the global automotive market is expected to grow by around 8% to 88.6 million new vehicles this year and another small increase of plus 1% in the next year in 2024. According to the available industries forecast, the overall global semiconductor market will shrink by 10% in 2023, while the automotive semiconductor market is expected to grow by 12% this year, and by another 10% in 2024. So it's really important to look at the different market segments separately.

The overall share of automotive within the entire semiconductor market is relatively small. The automotive semi market proves to be a lot more resilient than the overall market. Driven by the increasing IC content for autonomous driving, e-mobility, comfort and safety, there is actually good growth.

Ladies and gentlemen, after 9 months, Elmos is heading towards another very successful fiscal year. For 2023, we confirm our guidance as of June 28, despite ongoing challenges and uncertain economic and geopolitical conditions as well as the ongoing high inflation. We continue to expect full year sales in 2023 of more than EUR 560 million, representing a strong growth of more than 25% year-over-year. The full year EBIT margin in 2023 is expected at 25%, plus or minus 2 percentage points.

Elmos continues its expansion of the testing capacities for future growth and we continue to forecast capital expenditures of approximately 19%, plus or minus 2 percentage points of sales in this year. As a result, Elmos expect a negative operating adjusted free cash flow in 2023.

Ladies and gentlemen, I'm very excited about the future prospects of our company. We're executing our growth strategy, preparing for future growth and innovation as a fabless company and reducing the carbon footprint of our own activities, or in line with our vision, we are shaping the mobility of the future and make our world more sustainable, safer and a better place to live.

So that is the end of my presentation. Thank you very much for your attention. I'll now open the floor for questions.

[Operator]

[Operator Instructions] First one is Robert Sanders.

[Robert Sanders, analyst]

I just had a question regarding the EV lineups next year on the Western OEMs. Obviously, there's been a big slowdown in the EV market and Western OEMs are going to be changing their ramp schedules next year quite considerably given weak demand and given losses that they are anticipated to make on those EVs given the prevailing market price.

So as you see those OEMs switching back to ICE-based vehicles where they make money, how will that affect you? Are you agnostic to that trend? Or do you see some impact potentially from revised ramps and rescheduling of ramps into the future?

[Arne Schneider, executive]

Well, generally, every car that is sold is a good car for us. So we are -- on the first level of calculation, we are pretty agnostic to what the powertrain looks like. Of course, we like big cars, and we like well-equipped cars because there's just more in them.

On the other hand, kind of shifting some EV programs back to internal combustion engine may actually result in a pretty good take rate of certain options. So I wouldn't say this has a major effect, pro or con, our products.

By the way, we also like how the Chinese are ramping their EV programs because not only the European customers. It's also people from the PRC that buy a lot of Elmos chips.

[Robert Sanders, analyst]

Got it. And just for my follow-up, there was a lot of discussion on the onsemi conference call regarding Tier 1 inventory. You've got high inventory for ramps for next year, but how concerned are you about excess Tier 1 or OEM inventory or perhaps excess consignment inventory?

[Arne Schneider, executive]

Well, we see that we are going through a normalization phase. So a little bit of the fear that we had in the beginning of this year, I believe, is gone. People believe that by and large, they can get the product they need, at least a few kind of -- I mean, lead times are still a little bit higher, but if you keep on planning well and you do your logistics properly, there's no need for excessive fear. And that, I believe, leads to the idea that you can reduce inventory levels a little bit.

This is, for us, pretty much as expected. So we look at 2023, that overall, it comes out very much as expected. Had we believe everything that was maybe part of the discussion at the beginning of the year, we would probably have to tell you, this is less than people wished for. But we were always in an allocation where we said, let's kind of be honest and see what people really need and what is the run rate and what is -- should the run rate be based on the cars they build and you make your kind of the algorithms to determine what it should be. And if you align on something like that, actually, there's -- for us, there's not a huge amount of news.

[Robert Sanders, analyst]

Just last one, on the working capital, obviously, inventories ballooned significantly there as you prepare for this ramp. Should we expect inventory to start declining or at least inventory days to normalize to 2022 levels in next year?

[Arne Schneider, executive]

I mean, generally, we -- I believe, now that we get out of the allocation and that our ability to deliver is a lot safer because the value chain is functioning again, we can optimize working capital a lot more than we dared to do so this year. So it is a fair assumption that we will take a much closer look at the inventory development over the next year and following.

[Operator]

So next up is Tim Wunderlich from Hauck Aufhäuser.

[Tim Wunderlich, analyst]

First one is on pricing. Could you tell a bit about the pricing development that you're currently seeing? I'm talking about your product with your customers. And then also the expectation? I mean, you had a lot of tailwind in the -- over the recent 2 years when it comes to pricing. Could you give us an indication how is that most likely going to develop in 2024? And then I have a follow-up.

[Arne Schneider, executive]

Perfect. Thank you for your question. Well, it is, of course, a difficult situation when input prices rise. So over the past 2 years, we had to ask our customers for a participation and pass on of these higher input costs. We fighted -- we fought for the adequate volumes such that we actually are not the cause of any OEM line down in this allocation phase. And this is something we actually -- but then on the other hand, we have to share this burden and we have to pass on the costs associated.

Now on the input side, I believe it's pretty flattish, I mean, in the big average of things. So what we see in the industry is that most of our peers will have a pretty flattish pricing for next year.

[Tim Wunderlich, analyst]

Okay. Okay. I remember prior to COVID and prior to these types of constraints, you typically increase prices by 3% to 5% at the beginning of the year. I don't know if I remember this correctly. I mean, that is not something you would expect for 2024 then?

[Arne Schneider, executive]

Well, we still look at an inflationary environment. So some of the inputs like labor will inevitably be more costly. So there are some efficiency gains. There's also some higher input costs, maybe not wafers, but for sure, labor and other elements. I mean, things like spare parts, for instance, are got -- these are kind of oligopoly-like situations. So they tend to develop with inflation to say the least. So I believe that the net result of all of that is rather flattish.

[Tim Wunderlich, analyst]

Okay. Understood. Then regarding the product ramps that you spoke about, and that is these ramps that are helping your top line performance, can you give us an indication, what regions are these, the respective customers coming from? I mean, where are you seeing the most traction? And then also what product or product groups are we talking about when it comes to the ramp? And you also said that -- one last thing. You said that in 2024, automotive semi market is expected to grow by 10%. I mean, is it fair assumption that you can once again outperform the market?

[Arne Schneider, executive]

Maybe on the last question first. I think any double-digit growth would be a great success, but it's within the realm of possibilities. I mean, we can't give you a guidance right now for the next year. But it's not something I could rule out today. This is quite possible.

On the ramps, it's actually multiple products. It's from multiple regions. There will be Asian -- or are happening, and this will be even more Asian ramps. There's a European ramp, but it actually goes -- I mean, only because it's a European customer, it goes into a lot of cars in this world. So beyond the Tier 1 level, this is then spread out to all the regions. So it's a little bit random actually, where the Tier 1 sits.

Yes, we want something in Asia. Yes, we want something in Europe. There will be U.S. kind of type of ramp, so this will most likely show up in the Asian numbers again because this is where they will build it. So it's a little bit. Then beyond the Tier 1 level in terms of end market exposure again, spread out pretty globally. I mean, you can try to -- but then if you do this -- I mean, to rule out certain regions, there's a little less in that product, in that region, but then it's a little more in another product. So it's actually a pretty global exposure.

[Operator]

We have another question coming in from Malte Schaumann.

[Malte Schaumann, analyst]

My first question is on -- as well on the inventories. I mean we have seen quite a significant wave until the end of September just from trend perspective. Should we expect further increase in the fourth quarter? Do you expect that to remain flattish before then inventories potentially start going -- develop a bit better than -- in the next year?

[Arne Schneider, executive]

Yes. Well, I think, as I have said, I think we are now -- we are coming out of allocation. And this inventory situation is also a normalization path for us or will be a normalization path. We were happy to take some more wafers to have a little bit -- try to drive toward a little bit more stock to be really able to deliver, to kind of buffer all the uncertainties in the supply chain we had in the last 2 years, because there were uncertainties, to be frank. Not everything was as smooth as in the years before.

So we're returning to a more normalized path, and that means also inventories can return to more normalized levels. I do think we have adequate inventory now, and we, however, can manage that down now over time. Whether it's in the Q4 and what exactly the effect will be, I actually can't tell you. We wouldn't guide inventory for a single quarter. But the general direction, I believe, is clear.

[Malte Schaumann, analyst]

Okay. Good. Then also on the current ramp-up, maybe qualitative comment on the magnitude of what's about to come. I mean we have seen pretty strong development in the third quarter. So what do you expect then further tailwind from progressing ramp-ups in the current fourth quarter and then going into 2024?

So from the bulk of the ramp-ups you're currently seeing, when will be most of the tailwinds come through at the top line? I mean, obviously, you're expecting them to grow further. But from the current trends, strong trend you're seeing from a timing perspective, maybe you can add some color there.

[Arne Schneider, executive]

Well, you know our full year guidance. We are very confident that we will fulfill that. I mean it also says more than -- usually more than -- it's not EUR 1 million more than. So this is not going to be too bad. Well, we are fighting to make the ramps in the next year work.

We do have kind of two things. We have a normalization effect on the one hand where some of our peers kind of fear that they are not growing at all or so, and we don't see that. For us, if we look at it today, because we also see that we promised certain product and have to deliver it and now are preparing for that. So maybe that is also why we are not that negative on the next year. We are positive on the next year.

I mean it doesn't look like the same growth we see this year because there is the pricing component largely missing, if we talk in very kind of big blocks. But the general growth component is there and active, and there's a lot of momentum. So the world doesn't look too bad.

[Malte Schaumann, analyst]

Yes. Okay. We already touched on [ Jamie's ] comments, et cetera, potential mix and the change in the mix. Do you see any change in the inventory level, et cetera? Do you see any unexpected weaknesses in demand from your customers at the moment that evolved over the past couple of weeks and then going into '24, as you said -- as you already said, really everything more or less developing fully in line with what you had expected or would expect, given the pipeline you see?

[Arne Schneider, executive]

Well, the general picture is in line. That, however, does not mean that each and every individual customer -- I mean they are the ones, and they are the majority, that are totally in line with expectations. But they are also the ones that need more on sometimes short notice. And you can -- I mean we can speculate about the reasons offline. But this is -- this does happen. And the same is true with others, but this evens out. This is just the kind of error term and the usual chaos that can happen. But generally, it's a very kind of a controlled environment.

[Malte Schaumann, analyst]

Okay. So nothing unexpected, more or less? So it's, as you said, the usual...

[Arne Schneider, executive]

This is the usual. So -- I mean next quarter, we will, I guess, grow a little bit again. We have to see how much of the short-term things we can actually do for our customers. If some customers want to take out a little, we can also see how much we can do there. But this is kind of -- part of the normalization. This has always been the case over the last 15 years, that people call you and tell you, I need to pull in. I know we only should get it in 6 weeks. We may make it 3 weeks. And you try to make it happen, if you somehow can. And others saying, could you send it maybe 2 weeks later, it would be convenient because it's year-end, and we want to optimize. And this is all things that the supply chain manages and we try to be nice to each other, to our customers' demands. If that is reasonable and possible, we can discuss it.

[Malte Schaumann, analyst]

Yes. Okay. Last one, a pretty quick one. Would you be disappointed when you grow slower than the automotive IC market next year? .

[Arne Schneider, executive]

Yes, a little bit, yes. We seek -- I mean if the 10% comes through for the general market and we are below that, this would not be in line with our ambition.

[Operator]

Next up is Lukas Spang from Tigris Capital.

[Lukas Spang, analyst]

I have just one question. I think your growth is impressive and your margin is also very nice. But coming to the cash flow, it's -- I think that's, say, not that nice part of the story because I think it's not just about earning money, but also making money. So free cash flow topic is also something you could improve. And so the question is, how should we think about investments and so free cash flow development in 2024? What is going on the investment side? You also touched that for Q4 that investments will be not that high. So what is your expectation for next year?

[Arne Schneider, executive]

Yes. We had 2 quarters of record high investment now. You may even call it an investment program in our testing facility buildup. We really needed it because otherwise, we would be discussing other things here right now. This is kind of one big step.

I think this won't be enough invest forever. But kind of, for the more foreseeable future, we will not need that amount of investment for sure. We now reach quite a good level. We're getting all the things productive. We will need not that much investment, little investment you may even say, in Q4 and also would foresee in 2024 that we will utilize the existing invest -- I mean investment will never be zero, but it will be significantly less than this year.

[Lukas Spang, analyst]

Okay. But significant -- less but still in the double-digit area related to revenue?

[Arne Schneider, executive]

Well, this is hard to say because you're picking a point that is within the kind of, if you say, it's 10% within the possibilities, maybe. But honestly, we are just doing the budget this autumn. We'll have the budget finished in December. So maybe it's a little early to be that precise with numbers. But it's not going to be kind of 1 percentage point less than our guidance this year. This is not what I would kind of expect out of my feeling for numbers.

[Operator]

So next question comes from Johannes Ries from Apus Capital.

[Johannes Ries, analyst]

Can you hear me?

[Arne Schneider, executive]

Yes, we can.

[Johannes Ries, analyst]

Yes. Hello, it works now. I think it maybe my telephone is not probably working after we moved. Most questions have been asked from my colleagues. Maybe only some clarification. First, maybe you didn't mention, maybe, is your concrete house design wins have been in this year so far. Maybe you can update us on this because that's the base for the growth in the coming years.

[Arne Schneider, executive]

Yes. I mean you know that last year was kind of a super overshoot in design wins. We're also kind of -- we were -- of some years preparation showed in that year, 2022. This year will be less than last year. But if you wouldn't know about last year, you would be very much impressed about this year. It's -- I mean if I look at design wins, it makes me smile.

[Johannes Ries, analyst]

Why? I mean maybe because it's okay this year -- I got it. Okay. Yes.

[Arne Schneider, executive]

Inner satisfaction, if you think, yes. This is where our sales team, our business lines are really doing an excellent job, and we are very proud jointly on what we actually can achieve there. It's very reassuring.

[Johannes Ries, analyst]

Okay. And how is the funnel maybe before the design wins, maybe the projects you are discussing and maybe bidding for? How is this developed or developing?

[Arne Schneider, executive]

Yes, this is always, of course, a lot bigger than the design wins. Pretty stable and big, I would say. So there's no lack of innovation or of need in the car industry. I mean people continue to innovate, people continue to want the newer, the better, arguably, ICs from us.

So some products actually see a prolongation of their life. I mean we talked about the internal combustion engine product. And in certain applications, there are customers where we would have expected the request of a next generation, but they just say, well, we keep the old generation. We invest in the EV space. We have no R&D resources to redesign old ICE content. We wanted another 5 or 7 years. And we are, of course, happy to do that.

[Johannes Ries, analyst]

It's clear. Very clear. Only through design wins, business smile. The '23 design wins will maybe somewhat lower compared to the extreme year 2022, but clear higher above '21. Is that the right reading?

[Arne Schneider, executive]

Yes, yes, yes, very much higher than the '21 numbers.

[Johannes Ries, analyst]

Okay, I got it. Maybe -- okay. Coming back to maybe this pricing component. And this year, you said next year, this pricing component will widely kind of -- be gone away. Is it right to assume that this year, half-half or so is maybe driven by volumes and prices, the growth this year?

[Arne Schneider, executive]

Yes. Well, it may roughly be correct. Maybe it's a little less than half by the pricing component. But generally, this is a good view of the world.

[Johannes Ries, analyst]

Okay. So maybe on the investments, you are making test environment, early test equipment. How much maybe, percentage-wise, now you have increased your testing capacity? Wanted to have a feeling for what maybe longer-term growth, you prepare your organization.

[Arne Schneider, executive]

It is substantial. I mean I wouldn't comment too much on these numbers because they're always a little bit tilted by different generations of test machines, different generations of handlers times multisite. So the calculation is actually pretty complex on what this means for capacity. But I believe that the invest that we did will help us also very much in the next year.

[Johannes Ries, analyst]

Okay. Like you said, it's definitely enough to handle the next year and the year after that. Maybe on your guidance, only to read it right, you said in one comment, you expect some growth in Q4. I think it will close sequentially to Q2. If I would take your low point of your guidance, you said it's -- you guide for above. If I would say, mix would take this EUR 560 million, you would have a sequential decline in Q4. So that's definitely not what we should expect.

[Arne Schneider, executive]

No, no. Well, I mean, maybe it shouldn't be a decline. Maybe it's not a huge increase, but maybe it's -- if it's a decline, this would be a little bit disappointing, I think.

[Johannes Ries, analyst]

Okay. I got it. So for next 12 record quarter, maybe it's ahead of us. Super. Not more questions. Colleagues have asked most, I think. Good luck.

[Arne Schneider, executive]

Yes. We also need luck. We are working hard, but we also need luck. So thank you very much.

[Operator]

Thank you very much. At the moment, there are no further questions now. [Operator Instructions] So I hand back to your host, Dr. Arne Schneider, for the conclusion of the conference.

[Arne Schneider, executive]

So thank you very much. At the end, I would like to remind you again about our ESG call on November 29, and the publication of our preliminary financial year 2023 financials, including our expectations, the guidance for 2024, which is scheduled for February 15, 2024. So for now, thank you very much for your participation and your interest in Elmos. We look forward to meeting many of you at the upcoming investment conferences. Goodbye from Dortmund, take care and stay confident. Thank you.