SUESS MicroTec SE
XETRA:SMHN

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SUESS MicroTec SE
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Market Cap: 1.1B EUR
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Earnings Call Analysis

Q1-2024 Analysis
SUESS MicroTec SE

Strong Q1 Performance with Record Order Book

In Q1 2024, SÜSS MicroTech achieved notable growth, with sales surging 46% to over €90 million and EBIT margin increasing by 10 percentage points. The gross profit margin rose by 4.7 percentage points, driven by a favorable product mix. The company recorded a €457 million order book, underscoring future growth prospects. Despite this robust start, the leadership is cautiously optimistic, maintaining conservative guidance for the full year due to anticipated fluctuations in product and customer mixes. Net cash surged to over €100 million following the sale of the MicroOptics business, which significantly benefited liquidity.

Strong Financial Start in Q1 2024

The first quarter of 2024 showcased a remarkable financial performance for SĂśSS MicroTech SE. Sales surged by 46% year-over-year, reaching over EUR 90 million, which was a pleasant surprise for many investors. This growth was bolstered by a gross profit margin of 39.1%, a significant increase of 4.7 percentage points compared to the previous year. Notably, the EBIT (Earnings Before Interest and Taxes) margin rose dramatically by 10 percentage points to 15.9%. These metrics indicate that the company not only increased its sales but also improved its profitability.

Record Order Intake and Backlog

The company disclosed a record order book of almost EUR 457 million, reflecting a book-to-bill ratio of just over 1. This indicates that orders received during the quarter matched the sales volume, which is essential for sustained growth. The order intake for the quarter amounted to EUR 98.3 million, marking a 3.6% increase compared to the previous year. This growth in orders is particularly significant as it sets a solid foundation for the company’s targeted growth in the future.

Business Unit Performance Insights

SĂśSS operates through two main business segments: Advanced Backend Solutions and Photomask Solutions. In the Advanced Backend Solutions segment, the bonder business notably contributed around EUR 34 million, representing over 50% of segment order intake. However, there was an expected slowdown in demand for temporary bonders, debonders, and cleaners due to capacity ramp-up, which necessitated constant communication with key customers to gauge future needs. For the Photomask Solutions segment, order intake reached EUR 33.7 million, and sales dramatically increased by 61%, benefiting from strong execution of previously received orders.

Challenges and Areas of Caution

Despite the strong start, the management cautioned that Q1 results should not be directly used as an indicator for the entire year due to variances in customer and product mix, and potential future cost distortions. The Imaging and Coating business, in particular, continues to lag without substantial recovery in order intake. The management stressed the importance of managing the expected variability in customer demand and production capacity as they navigate through transformation efforts.

Outlook and Financial Guidance

Looking ahead, SĂśSS remains focused on its financial targets for 2024. Although the first quarter's performance was strong, the management held onto conservative full-year guidance, prioritizing a balance between profitability and continued growth through transformation. They indicated high expectations regarding order intakes for the second half of the year, supported by new forecasts from existing customers regarding capacity expansions anticipated to be communicated by Q2 or early Q3 2024.

Cash Flow and Balance Sheet Health

From a liquidity standpoint, the sale of the MicroOptics business in January significantly bolstered cash reserves, raising net cash to over EUR 100 million. This surplus has improved the company’s equity position by EUR 64.5 million, achieving an equity ratio of 58%. However, free cash flow from continuing operations showed a negative value of EUR 3.9 million, attributed mainly to an increase in working capital. Investors should closely monitor these trends to assess the ongoing health of operations.

Market Position and Competitive Landscape

SÜSS MicroTech SE is focusing on key markets such as high bandwidth memory (HBM), where they’ve identified growth opportunities. While they are currently sold out for the year, they anticipate available slots in 2025, suggesting potential for continued customer engagement. The shift towards silicon carbide technologies is also notable, although progress is slower than desired due to market conditions. The management appears optimistic about retaining their competitive edge in temporary bonders, particularly if customer demand forecasts align.

Earnings Call Transcript

Earnings Call Transcript
2024-Q1

from 0
Operator

[Audio Gap] today's earnings call of the SĂśSS MicroTech SE. In today's earnings call, we will delve in Q1 financial figures of 2024. I'm delighted to welcome the management Board and Sven Kopsel from the Investor Relations management team, who will start with the presentation shortly.

After the presentation, we will move forward with the Q&A session. And with this, let's start. Mr. Kopsel, please, the stage is yours.

S
Sven Kopsel
executive

Thank you, and welcome to our Q1 2024 conference call. As you probably know from earlier calls, this call is being recorded and considered as copyright material. It cannot be recorded or rebroadcast without permission and participating in this call implies your consent to this procedure. Please be aware of our safe harbor statement on Page 2 of the slide deck, it applies throughout the conference call.

And now I hand over to our CEO, Burkhardt Frick, who will present the Q1 highlights, followed by our CFO, Cornelia BallwieĂźer, with a financial update. Burkhardt, it's your trend.

B
Burkhardt Frick
executive

And also from my side, welcome to all participants. Also on behalf of our CEO -- CFO, Cornelia BallwieĂźer and COO, Thomas Rohe. All of us will be available for questions after our presentation.

Let's start with a look at the key figures for the first quarter. We communicated all of these in advance in April. So there's no surprise here. Compared to last year's Q1, our order intake is up 3.6%. Our sales plus 46% compared to Q1 2023, and our gross profit margin increased by 4.7 percentage points. EBIT margin is up by 10 percentage points.

Apparently, sales of over EUR 90 million surprised many market participants. However, there is no substantial reason for seasonality at SĂśSS. Our production capacity in Q1 was not lower than in Q4 2023. It even increased.

Even though we are currently focusing a lot on executing existing orders, our order book has grown again slightly, thanks to a book-to-bill ratio of just over 1. We have reached a new record level of almost EUR 457 million. This remains the basis for future targeted growth.

We are pleased to execute Q1 with such a strong gross profit and EBIT margins due to a favorable product mix and the overall high sales volume. However, Q1 should not be used as a simple proxy for the following quarters as the product and customer mix varies and costs are unevenly distributed.

Clearly, we want to build on this strong performance in the coming months and quarters. We are on track to achieve our 2024 targets, but we should not forget that we are still undergoing a growth transformation, which also requires additional expenditure.

Now I'd like to have a closer look into our 2 business units. First, advanced backend solutions where I'd like to make some comments on order intake in the bonder business that contributed about EUR 34 million and more than 50% of segment order intake. Demand for temporary bonders, debonders and cleaners for HBM capacity ramp-up continued, but as expected, slowdown compared to the second half of 2023. We are in a constant dialogue with our key customers and expect a forecast for future capacity expansion in 2025 in late Q2 or early Q3. We were able to win 2 new customers for temporary bonding equipment, thereof one customer processing 8-inch silicon carbide wafers.

Another good message from our hybrid bonding activities. We received one order for a wafer-to-wafer hybrid bonder. And as I can anticipate your question, it is not the foundry in Taiwan, which is currently evaluating the solution as well.

Bonding sales benefited from the strong order intake in the second half of 2023, and we were able to more than double versus Q1 2023.

Imaging and Coating business continues to be very slow. We still wait for a substantial recovery of order intake.

Now a few words on our Photomask solutions. Good order intake with a solid EUR 33.7 million, momentum again improved versus Q3 and Q4 2023. The highlight truly was the strong execution of orders, resulting in a significant sales increase of 61%. Please note, sales included revenue recognition of 2 tools, which already have been produced and shipped in Q4 2023.

Next, I'd like to hand over to Cornelia for more details on our financial results.

C
Cornelia BallwieĂźer
executive

Thank you, Burkhardt. Now you can see our first quarter financial results on this page. Burkhardt already mentioned the very solid development in order intake and sales.

Our gross profit margin was 39.1% and EBIT margin was 15.9% were strong and even outperformed our full year 2024 guidance. Product mix was quite positive, and we also benefited from a relatively high sales volume. And in addition, we were able to realize production efficiencies in one of our product lines. This overview also includes the net profit.

Net profit means the bottom line of our P&L and includes our continuing operations and the discontinued MicroOptics business. As a reminder, we received cash of EUR 75 million with closing the transaction in January. The result from discontinued operations recognized in the first quarter of 2024 included the gain from the MicroOptic sale and amounted to EUR 58.3 million.

Net cash rose to more than EUR 100 million as a consequence of the disposal. Free cash flow increased significantly due to the solid MicroOptics business -- due to the sold MicroOptics business, sorry, but the free cash flow from continued operations amounted to minus EUR 3.9 million, mainly caused by working capital increase in terms of inventory and less contractual liabilities, this means less down payments.

Growth also means that we are constantly pushing ahead with the recruitment of new employees. Compared to the first quarter of 2023, the number of employees has increased significantly by 180 people, as you can see here. On this page, I'd like to present the order intake of the past 3 years in a more detailed overview. Please note that all presented years are adjusted for the MicroOptics order intake, meaning they only include continuing operations.

As said, the first quarter 2024 was a very good quarter with an order intake amounting to EUR 98.3 million. The book-to-bill ratio amounted to 1.05. Looking at the right-hand side, you can see a breakdown of our order intake by region. Asia Pacific, again strongly contributed to order intake with a share of more than 80%. This overview shows how our 2 segments developed in the first quarter 2024.

Let me start with advanced backend solutions. Burkhardt already explains the positive order and sales momentum in the bonder business and the more challenging situation in our coating and imaging business. So I will not repeat this here. The gross profit margin achieved a high level of 44.5% and all product lines contributed to this result. EBIT margin came in strong and amounted to 12.8%.

In the Photomask Solutions segment, the quarter-on-quarter growth of 6.6% was outstanding based on the execution of our strong order book. Gross profit margin improved to a level of 32.9% after 30.3% in the first quarter of 23 and 29.6% in full year 2023.

We are still facing challenges with regard to onboarding and collaborating with external production partners and therefore, cannot exclude quarterly volatility.

Let us now move on the balance sheet. Here, you can see noncurrent assets remained almost unchanged compared to year-end closing 2023. Current assets decreased by EUR 24.6 million with 2 counteracting effects. On the one hand, the derecognition of the MicroOptics business led to a EUR 33.9 million decrease. On the other hand, inventories grew by EUR 12 million.

Cash and cash equivalents increased by around EUR 70 million, mainly driven by the completion of the MicroOptics sale. Total assets accordingly increased by EUR 45.8 million.

On the equity and liability side, equity significantly increased by EUR 64.5 million as a result of our very high net income, which included the gain from the disposal of the MicroOptics business. Our equity ratio has, therefore, improved to a strong level of 58% despite the increase of total assets.

Current liabilities reduced by EUR 23.2 million, mainly because of the derecognition of the balance sheet item liabilities associated with assets held for sale and decreased contract liabilities. That means lower down payments of our customers. Noncurrent liabilities went up by EUR 4.5 million, mainly due to increased deferred tax liabilities.

And with that, it's your turn again, Burkhardt.

B
Burkhardt Frick
executive

Thank you, Cornelia. Despite the very strong start into 2024, we stay with our guided forecast for this entire year. Some of you may consider this as conservative, but we are fully focused on executing our transformation while managing profitability and growth. The coming quarters will show how well we will succeed in this.

Now we are happy to take your questions.

Operator

Thank you so much for the insightful presentation. We will now move forward with the Q&A session. [Operator Instructions] And we got our first question from Florian Sager.

F
Florian Sager
analyst

I have a couple. The first one would be on the order intake for your lithography business. That's down significantly year-on-year. Do you expect this to bounce back over the coming quarters? Do you see any indications from your customers?

And the second one would be, there were reports last week that SK Hynix is fully booked for their HBMs for 25 already. How much capacity do you still have for 25 delivery for your temporary bonders? And then I have one more after that one.

B
Burkhardt Frick
executive

Yes, let me -- thanks, Florian, for your question. The litho business, as I said, especially the coating business is lower than initially expected. And this goes hand in hand with the market, which is pretty low and also some sluggish customer activity there. So we do expect it to bounce back. But luckily, we can compensate with other businesses. So right now, it doesn't hurt us. But definitely, we like to see this to recover, and we are actively working on it.

On your second question on SK Hynix, yes, that message was clear. Of course, we are working with all 3 parties there, and we are engaged in 2 out of 3. So this year, we are sold out. Next year, we probably have some slots available. And we are, as I said, eagerly expecting the forecast of our existing memory customers, how they plan the coming year. We expect that in later this quarter to come in or early Q3.

F
Florian Sager
analyst

Okay. Perfect. And then the last one is on your exposure to China for Q1. Is that about 30%? Is that right? Or is that less -- in terms of order intake, I mean.

S
Sven Kopsel
executive

So Florian, thanks for your question. It's Sven here. So regarding the geographical mix of order intake, it was, let's say, in line with earlier quarters. So that was not a specific situation, which we saw in Q1. So in terms of share of order entry, it was in China, more than 1/3, but this is a normal number for ourselves.

Operator

And we have another question from Mr. Wojahn.

O
Oliver Wojahn
analyst

Congratulations to a good quarter. Maybe just following up on the HBM question. First of all, Samsung, I believe, said that they were -- tripled its supply in HBM in 24 and doubled it again in '25. So the first question there would be this doubling in 25%. Would any of that already show up in your order book now theoretically?

And secondly, it seems as if all of the memory producers are expecting profitability -- their profitability to increase massively over the next quarters because this DRAM problem is now more or less solved. Would that mean that you can also be a little bit more -- well, could you adjust your pricing if your customers are more profitable? Or are these prices more or less fixed for the temporary bonders in '24 and '25.

B
Burkhardt Frick
executive

Wojahn, thanks for your question. Let me ask -- let me answer your second question first. The -- yes, of course, after the memory downturn in slump, all memory players are benefiting from the very high-priced HBM memory. That's a nice recovery they can do. And of course, if you deal with customers, it's not easy just to increase prices on existing tools unless you can offer higher throughput or other benefits towards the customer.

We already have fairly good prices for those temporary bonders as it's also reflected in our results, what we see in coming. But I don't see this as a possibility to raise prices unless I said, we can offer additional benefits. Some of these benefits I think we discussed earlier, and that's a throughput increase for those machines, which we offer. And then, of course, we will price it in.

The first question on doubling the output. Again, it's a mix of how many new machines are really needed and how many throughput increasing measures can we offer because if you get twice as many wafers out of the same machine, then you don't need that many new machines. But as I said before, we are waiting for the forecast -- the equipment forecast of those companies so that we can also plan our coming year better.

O
Oliver Wojahn
analyst

Okay. And maybe a second question, if I may. Could you just comment on why the advance payment received were lower while your order backlog was up?

C
Cornelia BallwieĂźer
executive

Because we have a change in the customer mix. And yes, it's different quarter-by-quarter. And there are some customers who do prepayments and some who do not. That's the simple answer, thank you for your question.

Operator

We have another question from Malte Schaumann.

M
Malte Schaumann
analyst

Solution business with more than 40% quite at a pretty favorable level. Do you expect that margin to be kind of sustainable owing to the current mix? I mean, obviously, you have a significant shift in the product mix towards more bonders, temporary bonders, especially. So once that mix kind of proved to remain stable, would you then expect kind of more or less similar margin levels in the upcoming quarters in that area?

B
Burkhardt Frick
executive

Yes. I think we didn't catch the beginning of your question, but I think you referred to the advanced backend solutions business, right?

M
Malte Schaumann
analyst

Right.

B
Burkhardt Frick
executive

Yes. So as I said before, we're a bit cautious not to use the first quarter as a proxy for following quarters. And that's simply because there are different mixes, which have to be taken into account also different cost impacts we have to deal with. So I would not use this as a proxy. But of course, on the temporary bonding business there. If you just isolate that, there I would expect similar margins at least for the remainder of the year.

M
Malte Schaumann
analyst

Okay. So would it then be fair to say the lithography part -- imaging part had been a bit better than average in the first quarter or just cannot one make that statement as well.

B
Burkhardt Frick
executive

No, I don't think so.

M
Malte Schaumann
analyst

Okay. Okay. Fair enough.

B
Burkhardt Frick
executive

But again, I'd just like to highlight to make proxies is very difficult based on this. And of course, we sell in the backend solution business more than temporarily bonders. So it's obviously product and customer mix. This quarter, we are discussing here, we had a favorable mix, but we also had quarters where we had an unfavorable mix. So therefore, we are a bit cautious here.

M
Malte Schaumann
analyst

Yes, sure. Okay. Then on the temporary bonder HBM side, I mean you indicated that customers will make a decision for next year's demand than in Q2 or Q3. Would you nevertheless say that the opportunities what you see in the pipeline is that should we expect kind of similar order levels in the second quarter for the bonder division or will there be kind of an investment pause until then customers have made up their mind in second quarter orders for that these tools might be coming a bit lower than what we have seen in the first quarter?

B
Burkhardt Frick
executive

Yes. I think, again, I would like to wait the forecast first. We already got some additional orders, but they come kind of sporadically. I think it also highly depends on our ability to deliver and to really meet our commitments. If we can meet all those commitments we've given throughout the year, then the anticipation is high that we receive more orders. If we don't do so well, then of course, it also motivates customers to look for alternative solutions.

M
Malte Schaumann
analyst

Yes. Okay. So that would have been more or less my next question. What do you expect and with the next investment phase next year, starting maybe in the end of this year that your market share -- that you can maintain your market share, potentially even extend that in the temporary bonding equipment area for HBM?

B
Burkhardt Frick
executive

Yes. As you know, we are solidly designed in 2 out of those 3 memory players. So if we can hold that share, then I would expect it remains stable. But of course, this is a new market developing. So I think a year ago, nobody talked about temporary bonders and this application space. So we have to see. But I think our goal is to maintain and defend the share we have.

M
Malte Schaumann
analyst

Okay. And in terms of silicon carbides, which you mentioned, was this kind of a multi-tool order? Or is that -- was that one tool for a new customer?

B
Burkhardt Frick
executive

Well, that order we received was for a single tool, but we happily will accept more.

M
Malte Schaumann
analyst

Okay. And does that -- do you have any visibility when that specific customer or when maybe general order activity -- I mean silicon carbide had been a bit slowed down this year due to the mix shift in EV markets. But do you have any visibility on expected demand or pipeline plan for silicon carbide related towards developing at the moment?

B
Burkhardt Frick
executive

I mean this is a market which moves a bit slower compared to the AI markets. And as you rightly say, there were some slowdowns in the EV market segments. We are, of course, already established with some of the silicon carbide players where we, of course, are in a ramp-up phase, and we would expect more follow-up business once that market recovers.

M
Malte Schaumann
analyst

Yes. Okay. And on hybrid bonding, you mentioned to have received an order for the wafer-to-wafer hybrid bonding system. Was that kind of a single event? Or do you see kind of a pickup in activity interest in hybrid bonding in general?

B
Burkhardt Frick
executive

Well, right now, there -- in hybrid bonding space, now you're only discuss single events. I think there is no huge market yet. Well, of course, we're getting ready for more volumes, but this was a single event. But in the second half, of course, we would have more expectations in the second half of this year.

Operator

[Operator Instructions] And we do not have a question at the very moment. So I'm going to give it a couple of seconds. As no further question -- there is a question, wonderful. Thank you so much, Mr. Ries.

J
Johannes Ries
analyst

Yes, I have just one last question regarding the overhead costs. In the first quarter, if my calculations are right, you booked -- you have around about EUR 570,000 overhead costs or central costs? Will that be the run rate for the next quarters? Or is it going to go higher a little bit? Could you hear me?

B
Burkhardt Frick
executive

Yes, we did.

C
Cornelia BallwieĂźer
executive

Thank you for your question. Yes, we expect more or less this as a run rate for the rest of this year.

Operator

As no further questions have come in, we draw today's earnings call to a close. I have a thank you to the leadership team, BallwieĂźer, Mr. Frick, Mr. Rohe and also Mr. Kopsel.

And with that, I would like to hand over to Mr. Kopsel for some final remarks. Thank you so much on behalf of Montega and have a great day.

S
Sven Kopsel
executive

Yes. Thank you. And if any more questions pop-up, please let us know, we are always happy to answer, as you know. And I wish you a happy afternoon and take care and see you next time. Bye-bye.

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