VIA optronics AG
Q1 2021 Earnings Call Transcript

Published: 18 May 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome, and thank you for joining VIA optronics First Quarter 2021 Financial Results Conference Call. I would now like to turn the conference over to Cassidy Fuller, Investor Relations. Please go ahead.

[Cassidy Fuller:]

Thank you. Good morning, and welcome to VIA optronics First Quarter 2021 Financial Results Conference Call. I’m Cassidy Fuller, Investor Relations for VIA optronics. Joining me on the call today will be Juergen Eichner, VIA’s Chief Executive Officer; and Daniel Juergens, VIA’s Chief Financial Officer. Today’s call is being webcast live and will be archived on the Investor Relations section of VIA’s website at via-optronics.com, where the company’s earnings press release is currently available.

[Juergen Eichner:]

Good morning, everyone, and welcome. Thank you for joining us today. First of all, I would like to provide a brief overview of our first quarter 2021 results. I will then discuss our key achievements and notable awards in the quarter before I turn over the call to Daniel Juergens, our CFO, who will review our first quarter 2021 financial performance in more detail and provide our outlook for the second quarter of 2021 and the full year. As we discussed last quarter, we have been focused on growing our footprint in revenue in the automotive segment, translating into new design wins during this quarter, extending our visibility and backlog for the following years. On top of the automotive business, we could convert more design wins in revenue, and as a result, we are pleased to report that we achieved our first quarter revenue of €41.3 million, representing a year-over-year growth of 60.7%. Following our plan, we continued to diversify our revenue and increase our sales in the automotive and industrial end markets. We continue to see a large opportunity in both sectors as the total number of displays with features that we are providing, including cameras and the use of glass as a design element is steadily increasing. As we noted on our prior earnings call, we increased our spending in critical areas of R&D and accelerated hiring to take advantage of the opportunity to engage in the new projects with existing and new customers. Despite the current labor market, we have been able to secure critical balance at a much faster rate than initially planned. These employees are being matched with the new designing opportunities that we have with our new customers. Simultaneously, we are aggressively ramping our production to meet the increased demand from our customers, particularly in the -- with our automotive clients. Many of these hires were to support our new manufacturing facility in Germany, which we anticipate will be completed next quarter.

[Daniel Juergens:]

Thank you, Juergen, and good morning, everyone. I’m Daniel Juergens, CFO of VIA optronics. I’ll start by reviewing our financial and operation performance for the first quarter and then provide our outlook for the second quarter and full year 2021. As expected, Q1 showed a slightly lower revenue as Q4 as every year, reflecting the seasonality of the consumer business, however, total revenue in the first quarter of 2021 was €41.3 million, up 60.7% from €25.7 million in the first quarter of 2020, which was driven by increased sales across business, even considering the impact of COVID during Q1 last year, this would still remain a significant growth. Total Display Solutions revenues was €35.6 million in the first quarter of ‘21, up 71.2% from €20.8 million in the first quarter of 2020. Growth was driven by increasing demand in all end markets, particularly in consumer. Display Solutions revenue represented approximately 86% of total revenues in the first quarter compared to 81% in Q1 of 2020. Within our Display Solutions segment, revenue from our automotive customers grew 131% year-over-year in the first quarter and accounted for 29% of revenues compared to 21% in the first quarter 2020. Revenue related to the industrial and specialized applications end market grew 15% year-over-year and accounted for 41% of revenue compared to 61% of the revenue in the first quarter of 2020. Revenue related to our consumer end market increased 188% year-over-year and represented 30% of revenue compared to 17% of revenue in the first quarter of 2020. Total Sensor Technology revenue was €5.7 million in the first quarter of 2021, up 16.3% from €4.9 million in Q1 of last year. Sensor Technology revenue represented approximately 14% of total revenue compared to 19% in Q1 of 2020.

[Operator:]

The first question comes from the line of Anthony Stoss with Craig-Hallum.

[Anthony Stoss:]

I have several questions. Juergen, for starters, the plant now being scheduled to open in Q3, I think that was versus Q2. So maybe one quarter later, maybe you can update us first off, on the status with your North American EV maker, if you commenced volume shipments or still at the prototype level? And then for Daniel, can you help us understand a little bit better the gross margin? I understand you’re hiring more people related to the plant opening in Q3. What do you expect gross margin to be for the June quarter? And any thoughts on where gross margin should maybe exit calendar 2021? Then I had a couple of follow-ups after that.

[Juergen Eichner:]

Yes. Let me start with the Q3. So there’s a delay in our factory readiness. This basically is caused by the equipment manufacturer that we have. However, we have -- we can overcome back by producing more units in China. So, it doesn’t affect the overall annual quantity, but it delays the start of production in Germany. So business-wise, it’s not -- it will not impact the overall revenue. However, it will delay the production here and that’s basically why I indicated the Q3.

[Daniel Juergens:]

If you…

[Anthony Stoss:]

Okay. Yes. Go ahead, Daniel, I’ll follow up.

[Daniel Juergens:]

Okay. So thanks for the question. It’s a good question. If you look on the development of the gross margin. In Q1 this year, we had some impact on the margin coming from several items. One is that we have been reduced one-time revenues from the reimbursement of NRE costs. We had a change in the revenue mix. This is the biggest impact on the gross margin, and we have seen lower licensing revenues than we had in the previous year, in 2020. This has strategic reasons. We want to protect our IP. And therewith, we are reducing our very high-margin licensing revenues, but this is a strategic decision. I think it is very helpful in the future even if it cost us some margin points currently. And last but not least, what was impacting the current quarter was the increase in material costs due to the shortages, of course, in semiconductor and things like that, but also in all other areas, everything is getting much more expensive than before, and we have -- you are always not in the position to fully shift all these costs to the customers that quickly. This will come during the second and third quarter.

[Anthony Stoss:]

Yes, that’s helpful. And then just circling back here again to my question. Your comment about having some equipment technical issues maybe for the plants in Germany. Is that -- have you produced, with your relationship with Corning anything on the cold form side yet? And maybe help us understand the nature of the technical issues and how easy they are to be ironed out whether or not this holds back some of the design wins you’re hoping to have related to cold form?

[Juergen Eichner:]

No, it doesn’t hold up any designments we have cold form. I mean I don’t know whether we have mentioned that before, but I think we are the only company in the world having cold form products already in production -- in mass production. So that doesn’t impact us. The technically difficulties are more related to -- we had to bring the equipment over from China. The Chinese manufacturer has actually -- has to adjust it to the European standard. So they had some -- well, let’s say, difficulties to adjust. So they have to do right now some rewiring and things like that. So it’s not -- I mean, it’s -- I’m not so happy about that because we wanted to ramp up earlier, but luckily it doesn’t impact us, not in our overall capacity, nor does it impact us in any way in terms of acquiring new projects or something.

[Anthony Stoss:]

Okay. That sounds good. And then my last question related to your comments in your prepared remarks, talking about with the North American EV maker, a new surround camera system, when -- can you give us a sense of when you might start producing for that? And is it for 1 socket or multiple sockets in the vehicles?

[Juergen Eichner:]

So this one is for -- so it’s -- so we have -- the surround view are basically for cameras, all right? And this is for 1 vehicle right now. And we -- so this is -- we expect -- so according to the customer, they want to start production end of the year, which sounds a bit early to me, but we will be happy if that works out. So it’s a very short design cycle. It will be good if it works out this year, but I’m not planning for it.

[Anthony Stoss:]

Got it. Perfect. Best of luck.

[Juergen Eichner:]

Maybe one word also to the semiconductor shortage. If you would have asked me 3 months ago, I would have said we have not been impacted. So right now, we have been impacted with mainly with cost increases. And it takes just a while to basically negotiate with the customer to adjust the price. So -- and this is -- this is why Daniel said, it takes a little while. So, it’s not that the customers don’t want it. Of course, nobody wants higher cost, but it’s not that they are not willing to adjust.

[Operator:]

The next question comes from the line of Andrew Buscaglia with Berenberg.

[Andrew Buscaglia:]

Can you talk about a little bit more about some of the customer wins. How many of these are new relative to last quarter? I believe, you said in EV, there’s 10 customers, you have wins on numerous models. Can you kind of update us what’s changed versus last quarter? Like maybe you can in order of magnitude, what are the size of these new wins? Are they big projects or small and medium? Anything -- any color you can give us would be great.

[Juergen Eichner:]

So all of these wins are, I would say, significant, camera opportunities are usually a little bit less. But whenever you talk about cold form and it’s usually a significant design win. If you look over the last -- so in average, I would say, since last year, you can say, in average, you have 1 design win group per quarter roughly in this market. This is what we see doesn’t say that it has to be one for the quarter, but this is what we’re currently seeing as a rate. Most important is, for me, that these design wins are also with new customers, and they have more projects. And this is an incubation project for us. So it’s a design win, yes. But it’s also an incubation project to this customer and to get more business. For example, the one in China, this is right now where we are in the high end car. If that is successful, then we would get the mid-range as well. The mid-range is a significant higher quantity. So these are all for us. They are nice projects, but they are also door openers.

[Andrew Buscaglia:]

Okay. And for the most part, you expect production on these to begin before year-end?

[Juergen Eichner:]

That on -- to be honest, on this one, on the recent one, the recent cold form, I think it’s next year. I need to check that, but I think it’s next year.

[Andrew Buscaglia:]

Yes, go ahead, sorry. No, go ahead, sorry.

[Juergen Eichner:]

The other one that I mentioned, so starting to be high end going into the mid-end, this will follow shortly after. So that’s probably be also on next year.

[Andrew Buscaglia:]

Okay. So your 2021 guidance isn’t contingent upon these reaching production yet?

[Juergen Eichner:]

No, no. They have not been included in the 2021 guidance yet to that extent.

[Andrew Buscaglia:]

Okay. Got it. Can you talk about -- is there -- in terms of you guys touched on M&A. That’s an area you’d like to allocate some capital to. Has anything changed versus last quarter in terms of your outlook there? Or now that the pandemic is kind of relieving?

[Juergen Eichner:]

No. The only thing which has changed is that we wanted to close it this quarter and -- sorry, last quarter and now we are closing in this quarter. So you will hear about this in the next earnings call. We are very close to closing.

[Andrew Buscaglia:]

Okay. And can you comment on the kind of the nature of this area -- of this potential acquisition, is it small, large or anything you can indicate?

[Juergen Eichner:]

It’s a smaller acquisition. It’s basically -- we are looking more into -- basically, how should I say that, to have a systems integration company. So as the products that we are bringing in the Display, the cameras and so on and so forth, they have to interact with the automotive electronic system. So you have to have interfaces, you have to provide software, you have to provide user interfaces. And also, upfront, you might be required to integrate part of what you have not the final products, but part of what you have in the car to test it in the car, so. And this is the kind of company we are acquiring. And it’s a well-established company, especially here in South of Germany with some carmakers there, which may give you an idea.

[Andrew Buscaglia:]

Okay. And lastly, I just want to clarify with the large EV -- U.S. EV project that we thought would have commenced by now, but it sounds like that’s more Q3. That’s more on that EV maker. I was a bit confused about the nature of the delay that is it the EV maker that kind of delaying things, or is it more around on your end?

[Juergen Eichner:]

The working delays in the EV maker because the -- I don’t know if you read the news, you probably know that, there were some other parts of the car not ready. So they were missing parts. So they actually delayed a little bit. And the -- what we are seeing right now is really -- it’s really -- it’s an integration part of the equipment. So the overall -- and we also see a lot of changes in the -- we have seen a lot of changes in the development process. We still see changes going on. Actually, to be honest, we are already working on the next design with them already. So this is not to get fully in production, but we’re already working on the next generation, and we’ve been asked to provide already samples and demos for 2 other lines that they have. So this is actually pretty very well progressing. It absorbs a lot, a lot of people in manpower, and this is why we are continuously hiring faster than expected. Luckily, right now, we get people. It was a lot -- I don’t know why, but it was a lot harder last year. This year seems easier, I don’t know why.

[Andrew Buscaglia:]

Okay. Interesting. Yes. So presumably, it is all temporary, yes, the delays are temporary, it seems like the long-term outlook, this customer is still very strong and nothing has changed. The fact that any things are changing for the better long term.

[Juergen Eichner:]

No, it’s all good, and it’s actually what’s happening right now. We’re getting -- at the beginning was discussions about new models. And now we are talking about the model. So we know what models they are, we are providing samples. I mentioned initially that we see a lot of demand in OLED. So this is also related to that. It’s at the end of the day, the opportunity becomes bigger and bigger. And actually, to be honest, it is also very exciting right now because it’s a different kind of -- I mean, OLEDs are not that common in the car. And this is something, which will obtain, from my point of view, if I’ve seen samples would be -- I would say breathtaking experience if you finally sit in that car, as an example.

[Operator:]

At this time, there are no further questions. So I hand back to Juergen Eichner, CEO, for closing comments.

[Juergen Eichner:]

Yes. So from my side, the only thing left to do is to basically thank you joining us for the call today. We look forward to update you on our progress and hope that we have you with us on our next earnings call, but we can also, I think, finally give you more details, have executed that M&A project that we’ve been talking about. Again, thanks, everyone, and looking forward to talk to you again.

[Operator:]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.