u-blox Holding AG (UBLXF) Q2 2024 Earnings Name Transcript

u-blox Holding AG (OTCPK:UBLXF) Q2 2024 Earnings Convention Name August 7, 2024 8:00 AM ET

Firm Individuals

Rafael Duarte – Head of IR
Stephan Zizala – CEO
Camila Japur – CFO

Convention Name Individuals

Harry Blaiklock – UBS
Michael Inauen – ZKB
Torsten Sauter – Kepler Cheuvreux
Jürgen Wagner – Stifel

Rafael Duarte

Hello, everybody. I am Rafael Duarte, Head of IR at u-blox, right here along with our CEO, Stephan Zizala; and our lately joined CFO, Camila Japur. Glad to have you ever on board, Camila. Our agenda for as we speak, we’ll current the primary points of those outcomes, present you an outlook to the enterprise and shut it with a Q&A session. As all the time, so as to make a query, please comply with the directions within the webcast platform.

Stephan, I hand over to you.

Stephan Zizala

Welcome, everyone, and thanks, Rafael. Welcome from our headquarters at Lake Zurich in Switzerland. Let’s transfer on to Web page 5 for the highlights of the interval. We reported half 12 months outcomes, which got here in on the greater finish of our steering. It seems that we had been proper in our predictions final 12 months through the Capital Market Day in November. We reached the bottom level of the cycle within the first quarter and noticed a slight enchancment within the second quarter.

EBIT was fairly unfavourable as a consequence of the decrease income. Our price optimization program began at first of the 12 months and already generated CHF 5 million in financial savings. Regardless of the unfavourable EBIT, we managed to take care of a resilient constructive free money movement, primarily from our efforts in lowering working capital.

At this stage, for those who comply with different semiconductor firms, you’ll not be stunned to listen to that we now count on a extra gradual enchancment within the third quarter. And due to that, we take motion and develop the scope of our price optimization plan. This new broader plan goal financial savings of over CHF 20 million. After this abstract, I want to undergo among the enterprise achievements of the primary half.

Slide 6. First, on the robotic lawnmower market. We have now received companies that may sum as much as over CHF 100 million in income from 2024 onwards. I should be trustworthy on this one, when the staff got here with this quantity, my first thought was, is that this market that massive? What number of lawnmower’s are we speaking about right here? Then I realized that over 2.5 million lawnmower’s are anticipated to be bought simply this 12 months with an estimated progress of shut to twenty% per 12 months. high-precision know-how is anticipated to be increasingly current in these lawnmower’s.

To me, this can be a good instance of purposes that may emerge within the subsequent 12 months utilizing exact, dependable and inexpensive positioning know-how offered by u-blox. Precision agriculture, automotive development machines, autonomous automobiles and plenty of extra purposes, one didn’t even think about as potential a couple of years in the past, have to know their actual place. And that is precisely what makes us and foremost me so enthusiastic about the way forward for u-blox and particularly positioning. The long run holds in quite a few purposes for our applied sciences, which can proceed to evolve and form our lives.

On Slide quantity 7, I wish to talk about a vital partnership with NVIDIA. NVIDIA is the chief in synthetic intelligence applied sciences, offering options that energy a big selection of our industries. Their AI platforms are essential for advancing improvements, notably in areas requiring real-time processing and decision-making. Synthetic intelligence depends closely on correct and well timed knowledge inputs, together with GNSS. Our high-precision GNSS options be certain that AI techniques obtain the dependable and exact place data they should function successfully in numerous environments.

This collaboration will assist to make it easier for engineers to develop autonomous automobiles and cellular robots primarily based on u-blox, positioning options. On one hand, u-blox has joined NVIDIA — NVIDIA Jetson Companion Ecosystem, which delivers the ability of contemporary AI for industrial, autonomous machines and different edge AI purposes throughout all industrial markets.

Alternatively, u-blox is listed as a reference for positioning sensors in NVIDIA’s developer equipment for autonomous automobiles. Engineers within the ecosystem can shortly develop and deploy modern AI-powered units for all kinds of use instances.

Now again to our outcomes on Slide quantity 8, the place we glance into our income for the primary half, which dropped to CHF 121 million on the greater finish of our steering. The unfavourable efficiency is especially related to the inventories held by our prospects.

In Q2, income grew by 16% versus the earlier quarter, which confirms our prediction of bottoming out in Q1. On the subsequent slide, you will note the breakdown of this income growth.

Slide quantity 9. A number of essential messages right here as we glance into these particulars. First, the efficiency was weak throughout the board. There are some variations right here and there, however the common image is comparable, primarily because of the frequent impact of overstocking.

Second, the one distinction I might level out right here is the higher efficiency in positioning in comparison with connectivity. Third, a standard query from investor, and in my view, a vital one is about market share. I can affirm that we win in our goal purposes. If I take automotive, for instance, we’ve got achieved extra design wins on this half 12 months than 1 12 months in the past, a double-digit enhance.

Now I want to welcome Camila Japur, our new CFO. She’s going to information you thru the financials. Camila?

Camila Japur

Thanks, Stephan. Earlier than I begin, let me say a couple of phrases. I promise to not be lengthy right here. I am very glad to be right here as we speak. I joined at u-blox in June and took over the CFO place in July. There are various causes that make me excited to be right here. Let me point out three.

The primary one is that u-blox addresses key mega traits that create a constructive impression on this planet. Second, u-blox has a stable monetary mannequin in a high-growth trade with excessive gross margins in a lightweight asset mannequin, which results in a excessive money technology.

And the third one is that I consider there are various alternatives to speed up worth creation, a few of which I may learn affirm throughout these two months. I look ahead to including worth to the corporate and to collaborating with capital market.

Now to the financials on Slide 10. So if we begin from the left facet, we see adjusted gross revenue reached EUR 53 million within the first half this 12 months in contrast with CHF 156 million final 12 months. The corresponding gross revenue margin declined from 46.8% to 43.7% within the present 12 months. As Stephan talked about earlier than, Find carried out higher than Join on this first half, which generates a constructive combine within the gross margin as Find has a better contribution margin than Join.

Nonetheless, this constructive impact was offset by a flattish mounted price of operations in logistics with a decrease income base. Wanting ahead, with the identical product combine and better gross sales, we count on a better gross margin.

Let’s transfer now to OpEx and EBIT on Web page 11. Beginning with money R&D bills on the left facet. R&D is CHF 64 million within the first half of ’24 in contrast with CHF 65 million within the first half of 2023. The price optimization program initiated this 12 months delivered CHF 2.7 million financial savings in R&D. This was partially offset by new hires made in 2023 that occurred earlier than the price optimization program is began. We’re speaking about money R&D in that is slide, simply to be clear.

As a reminder, our IFRS-based P&L consists of the impression of R&D capitalization. R&D capitalization is a subject that I wish to dive deeper within the close to future. Should you go to SG&A, we see a decline by 8%, reaching CHF 31 million. From the CHF 3 million discount year-over-year, CHF 2.2 million are attributed to the price optimization program talked about earlier than.

As you possibly can see, OpEx as a share of getting elevated regardless of our price optimization program attributable to a decrease income base. Consequently, adjusted EBIT reached minus CHF 36 million within the first half of 2024 versus CHF 62 million final 12 months. The respective adjusted EBIT margin declined from minus from ’19 within the first half of 2023.

We’re taking actions and increasing the scope of our price optimization plan with incremental goal financial savings of over CHF 20 million, with first financial savings anticipated to be seen within the second half of 2024. This can be a crucial adjustment for our price base to enhance profitability. I cease right here with the P&L evaluation. For completeness, we’ve got included the complete P&L within the appendix.

Now we transfer to our money movement on Slide 12. We had a robust free money movement within the first half of CHF 15.7 million regardless of the unfavourable EBIT. The development was primarily attributable to working capital, which added CHF 39 million to our money technology. This was pushed by a discount in commerce receivables.

Extra particulars on working capital within the subsequent slide, Web page quantity 13. Right here, you possibly can see on the left-hand facet, we see the evolution of our working capital in absolute worth and as a share of income. Working capital as a share of income stays at related ranges in comparison with December final 12 months regardless of a big drop within the prime line. This enchancment was primarily attributable to a discount in commerce receivables down by CHF 57 million.

Working capital enchancment is a prime precedence and one thing I’ll proceed to focus within the second half, particularly stock administration. Then to conclude, on the suitable facet is our web money place, which stays very stable at approximated CHF 100 million regardless of a dividend fee early this 12 months. And it is related to spotlight that we had no gross debt.

Stephan, again to you.

Stephan Zizala

Thanks, Camila. Now to our outlook on Web page 15. At this level, you’ve got already seen the outlook of different firms that function in our house. The numerous restoration anticipated in the direction of the center of the 12 months appears to occur extra step by step. Let’s speak about some information.

Based mostly on the orders already positioned by our prospects, we count on a sequential enchancment within the second half of the 12 months. As a matter of truth, orders for our positioning enterprise within the third quarter 2024 are greater than within the third quarter of 2023.

Moreover, our evaluation, primarily based on our information of the trade and relationship with our prospects is that the digestion of the overstock is taking barely longer than anticipated, additionally pushed by a slower demand in finish markets, specifically industrial.

Let’s go to Slide quantity 16. For the third quarter, we expect improved income within the vary of CHF 75 million to CHF 85 million, which interprets right into a quarter-on-quarter progress between 15% and 30%.

As for EBIT, we count on an adjusted EBIT margin starting from minus 10% to minus 5%. This doesn’t embody the one-offs from the price optimization program which can be anticipated within the P&L beginning within the third quarter.

Slide quantity 17. Because of the extra gradual restoration anticipated for the subsequent quarters, we’re growing the scope of current price optimization plans that already began at first of the 12 months. The implementation of this broader plan will begin now, and we count on annual financial savings of over CHF 20 million with its first outcomes already within the second half of 2024. After all, we’ll proceed to guard our actions, that are core to our technique. The one-off prices associated to the plan are anticipated to be under EUR 20 million.

Slide 18. Earlier than we end, let me provide you with an replace on the turnaround of our connectivity enterprise. In our Capital Market Day final 12 months, we introduced the turnaround with three assumptions: primary, cease this future mobile chip growth. That is carried out already. Quantity two, win market share, leveraging our trustworthiness as a Swiss provider in a multipolar [ph] world; quantity three, use scale to develop into western price chief.

Final 12 months, I made it very clear that we’ll see if we’re profitable with this in a matter of quarters, not years. Lots of you ask me for a concrete date for an evaluation and choice. We are going to proceed to trace the execution of this plan carefully, and we’ll evaluation strategic choices for the enterprise by finish of the 12 months 2024.

To conclude on Slide 19, I am satisfied that we go after the suitable progress markets like automated driving. Sure, the present enterprise state of affairs is difficult, however we’re taking motion, and we’ll handle it by means of. We’re the undisputed market chief in positioning primarily based on our distinctive IP and we’ll additional develop this. And we’ve got the potential to create sustainable worth with our centered, innovate and execute technique. There’s lots to enhance and acquire. We’re an incredible and dedicated staff, and we’re on it. Thanks.

Rafael Duarte

So thanks each for the presentation. Operator, we at the moment are prepared for the Q&A session. Do we’ve got any questions?

Query-and-Reply Session

Operator

[Operator Instructions] The primary query comes from Harry Blaiklock from UBS. Please go forward.

Harry Blaiklock

Good afternoon. Thanks for taking my questions. The primary is on automotive. And it looks as if it is down fairly a bit greater than what friends are reporting. And I do know the GNSS market and the stock dynamics there are barely totally different from different product classes. However in your thoughts, what are the drivers of that weak spot? And have you ever seen any lack of market share in any respect that you simply’re conscious of?

Stephan Zizala

Hello, Harry. So let me come again on this level. Certainly, it is a vital query. So to start with, we undergo closely from overstocking. That is the primary impact of this heavy income drop. When it comes to market share, I solely can repeat within the first half of 2024, we received extra initiatives in automotive than the 12 months earlier than. The greenback worth was double-digit share greater than the identical timeframe the 12 months earlier than. So once more, to reply your query, overstocking is the primary impact.

Harry Blaiklock

Proper. That is sensible. Thanks, Stephan. After which possibly a follow-up to that. You talked about within the launch that the automotive, you see it getting higher. However then that, once more, appears to be form of the offset of what we’re seeing at friends and trade knowledge as effectively. I imply we have seen auto manufacturing numbers and forecasts get adjusted down for 2024. So I used to be questioning whether or not you possibly can present some coloration on these feedback as effectively?

Stephan Zizala

So really, it is two subjects. To start with, once more, the impact of overstocking may be a lot stronger for us than among the friends you’re looking at. And second, in fact, we additionally see a content material progress in autonomous driving, which has a better take charge. And this may clarify the distinction right here.

Harry Blaiklock

Okay. Is smart. After which when it comes to the price optimization plan, it might be nice to get a bit extra coloration on form of the place that is going to be centered throughout the enterprise. After which specifically, what are the incremental areas that you simply’re specializing in past what was introduced final 12 months? After which possibly a follow-up, are you comfy that these cutbacks aren’t going to have an effect on future progress plans?

Stephan Zizala

So to start with, we’ll shield our core focus progress areas. That is of utmost significance, and you’ll be 100% certain that we’re performing based on this. However in fact, a decrease income base, a decrease enterprise additionally has some implications what we handle for this enterprise to present you no matter, what assets we have to handle a decrease enterprise. And there is a sure manner, a pure method to scale back prices and complexity at this time limit, and this we’re going after.

And second, in fact, we glance much more carefully the place we will optimize and which features we will optimize to broaden this. And simply coming again to what we introduced at first of the 12 months. Initially of the 12 months, we introduced for instance, smooth cost-cutting measures as a result of we had the belief, there’s a extra important restoration within the second half. As we do not see this, we act and develop this system to different actions throughout the operate whereas for certain, defending our core actions.

Harry Blaiklock

Received it. After which a fast follow-up. The CHF 20 million of financial savings, are you anticipating that full impact in subsequent calendar 12 months. So whole CHF 20 million of financial savings in 2025? Or is it going to take longer to ramp?

Camila Japur

I can take that one, Stephan. So sure, we should always see the primary financial savings already within the second half. After all, we wish to well timed execute in a manner that we will see the complete impact already in 2025. That is in our plan. However this, in fact, relies upon — we’re speaking about a number of markets relies upon additionally within the native laws, so.

Harry Blaiklock

Okay. Good. Thanks, Camila. Would it not be okay to squeeze one final query then? Sorry, I am hogging barely. If not, I can bounce again to queue.

Stephan Zizala

High-quality for me. Go forward.

Camila Japur

Go forward.

Harry Blaiklock

On the lawnmower instance that you simply talked about within the presentation, can you present a tough form of common promoting value determine for u-blox content material in a product like that?

Stephan Zizala

So the vary is fairly extensive right here, I have to say, as a result of they’re, once more, loads of totally different eventualities. However to provide the order of magnitude, decrease double digit is an efficient magnitude.

Harry Blaiklock

Okay. Nice. All proper. Thanks a lot, Stephan and Camila.

Operator

The subsequent query comes from Michael Inauen, ZKB. Please go forward.

Michael Inauen

Thanks. Hello, everybody. Thanks for taking the questions and likewise a few questions. To start with, additionally on the price financial savings program, possibly you may give a bit bit extra element what — or possibly I simply forgot, sorry for that, however what was your preliminary plan really on the price financial savings program? And the way a lot price do you’ve got deliberate for that earlier than you now elevated it principally? So what was your base assumption earlier than as we speak?

Stephan Zizala

So initially, we focused double-digit price financial savings. And we achieved round CHF 5 million already within the first half of the 12 months. So we’re executing on this one. And now in wanting on the state of affairs available in the market, the place we see is anticipated a big enchancment within the second half will come extra step by step. It is nonetheless coming, however not as shortly as we anticipated. Due to this fact, we launched a wider price saving program.

Michael Inauen

Thanks, Stephan. However is it truthful to say that if Q3 is recovering step by step in This fall once more versus Q3 that what you could possibly do on the EBIT line doubtlessly is eaten up by the price to your price financial savings program or threat, let’s name it, restructuring prices? Is that truthful to say?

Camila Japur

Possibly I can begin, Stephan right here. So we information for Q3, proper? After which we already place [ph] for Q3. We are going to are available October with a greater view about This fall. What we will let you know is that we’ve got an in depth plan behind this CHF 20 million further financial savings that we communicated. And we’re absolutely dedicated to ship that on a well timed foundation to ensure that we see this primary financial savings already within the second half of the 12 months. It’s extremely onerous to be very exact when precisely it to begin, however we see a profit to do that faster as potential to see the impression within the P&L.

Michael Inauen

Okay. Good. Okay. Thanks for that. Possibly simply two extra, if I’ll, on the money movement. So you’ve got had a fairly constructive free money movement, due to web working capital enhancements. However in fact, web working capital in comparison with gross sales continues to be fairly excessive. I imply, that is because of the state of affairs, I perceive that. However can we count on to get again to the degrees we’ve got seen up to now is 14%, 15%? Or what could be a goal there that we may form of plan with for the subsequent couple of years or, for instance, subsequent 2 years?

Camila Japur

Sure. So the subsequent merchandise that we’re concentrating on is stock, proper? And as I discussed, that is prime of my agenda for now the approaching months, proper? So we’ve got, as you talked about, first half was fairly sturdy in working capital, and this was primarily pushed by accounts receivable. We is not going to information for the second half. We’ll come again to that. However I am supplying you with some colours.

We have to take into account that we’ve got the impression of a one-off impression restructuring prices. Our first estimation is one thing under CHF 20 million, impacting the second half money. However we additionally see a gradual enchancment we’ve got within the second half. That ought to result in a low unfavourable money movement from the enterprise in Q3, that we should always have the ability to partially offset by working capital actions like stock discount. I feel that is the primary lever for us to enhance working capital, yeah. The excellent news is that with a decrease price base additionally, we speed up profitability.

Michael Inauen

Sure. Thanks. That is sensible. And possibly simply the final one on strategic query, notably for Stephan. We have mentioned it earlier than, additionally the optionality that you’ve got, you name it the bipolar world, which I feel is fairly effectively stated. However are you able to see there already constructive results for u-blox coming from that, for instance, political, geopolitical uncertainties. I imply, are you successful enterprise, for instance, within the U.S. in opposition to your largest Chinese language competitor? How do we’ve got to consider that?

Stephan Zizala

I imply, we addressed these subjects and in our turnaround assumptions for our connectivity enterprise. And it isn’t simply potential to say one trick will do all the pieces. So for certain, we see extra alternatives on this space. And for certain, we additionally see that we’re successful on this space. So it isn’t one thing theoretical on the market, nevertheless it’s one thing we completely see to attract a line and say this would be the key half for a profitable turnaround. We all the time indicated it will likely be a matter of some quarters. And as we speak, I dedicated that we’ll come to a transparent evaluation by the tip of the 12 months. And there, we’re very effectively on observe.

Michael Inauen

Okay. Good. Thanks for that. And I want you an incredible day and see you quickly.

Camila Japur

Thanks.

Stephan Zizala

Thanks.

Operator

The subsequent query comes from Torsten Sauter, Kepler Cheuvreux. Please go forward.

Torsten Sauter

Hello. Sure, good afternoon. Really, I’ve a few questions, if I’ll. First one could be on the price part and the — sure, principally price cuts. I’ll have neglected the determine. Are you able to disclose the variety of full-time workers on the finish of Q2? And possibly how ought to we really feel in regards to the growth of headcount going ahead?

Stephan Zizala

So, to start with, that the tough variety of workers is barely under 1,400. And we didn’t put out a concrete quantity there. So what we goal for is that this above CHF 20 million financial savings, and it is also clear that discount of personnel price is an included measure to realize this.

Torsten Sauter

Okay. Understood. I feel it might be useful to have that quantity on a recurring foundation, if I’ll say. Then if I’ll, on Slide 15, the place you present an illustrative quarterly income growth. Now I put principally a ruler on, and have the texture that you could be wish to suggest an exit charge of This fall revenues within the tune of say, CHF 100 million or one thing. Would that quarterly stage of a run charge, I assume a restocking impact after destocking? Or is that one thing that would additionally assist us as a primary evaluation of the place the enterprise may go subsequent 12 months?

Stephan Zizala

Properly — so to start with, the chart is illustrative. So we did not wish to present a steering for the fourth quarter. We’re guiding for the third quarter. If we do our forecast, in fact, we attempt to extrapolate the true demand, we do not give attention to restocking subjects. So if – I haven’t got — it is already troublesome sufficient proper now to foretell how the overstock actually is consumed. So predicting now a restocking, which we’ll see right here or there, I am additionally completely satisfied that is inconceivable. This I do not do.

Torsten Sauter

Very clear. Thanks. I even have a pair extra questions. Possibly if I’ll…

Stephan Zizala

Go forward.

Torsten Sauter

Only a clarification query. If you speak about these US$100 million in anticipated income within the lawnmower market, is it appropriately understood that this may come on prime of orders that had been disclosed in automotive enterprise in the same magnitude earlier in 2014?

Stephan Zizala

Sure, it has principally even two totally different market segments. Lawnmower’s could be slightly the commercial market phase and automotive is clearly automotive. So no overlap or no double accounting in there.

Torsten Sauter

Good. Thanks. After which permit me possibly one ultimate query, strategic query possibly. Sadly, we’re witnessing the arrival of drone warfare within the Ukraine battlefield. And now I do know that u-blox is intentionally not lively in protection purposes. Nonetheless, do you see a threat that useful resource for brand new competitors is getting into the marketplace for unmanned aerial automobiles now?

Stephan Zizala

Properly, to start with, we aren’t available in the market of unmanned autonomous automobiles. So we’re delivering positioning elements, that are utilized in business or shopper drones. And I feel, and I am satisfied primarily based additionally on our observe document in positioning, it isn’t really easy that with some huge cash, you simply can copy twenty years of knowledgeable information to realize positioning accuracy and reliability.

And there is one other issue you want to remember. Already 20 years in the past, it was potential to have a fairly correct place. The issue simply was, it was very cumbersome and really, very costly. So we speak about 1000’s of {dollars}. Our power along with the accuracy and the reliability is that we make it inexpensive for a variety of purposes. So I am not — I am not involved in any respect of potential government-backed firms who attempt to enter this market. They’ll keep of their area of interest.

Torsten Sauter

Very clear. Thanks.

Operator

The subsequent query comes from Jürgen Wagner from Stifel. Please go forward.

Jürgen Wagner

Yeah. Good afternoon. Thanks. You now give us the income cut up between your companies, so positioning and connectivity. What would it not seem like on EBIT stage? And sure, the capitalization you probably did within the first half, additionally how was that cut up between positioning and connectivity. And my final query could be amortization was nonetheless excessive when it is going to go down extra considerably as we rolled down lots, I feel, final 12 months. Thanks.

Camila Japur

So we do not disclose profitability for these enterprise, join and allocate. What — if I may give a little bit of coloration is, our expectation is that Find is barely constructive EBIT within the second half of the 12 months. So that is what I may share at this level. And speaking about amortization and capitalization. So this can be a matter that’s prime of my agenda. It is certainly one of my prime three precedence, and it is one thing that may work now with the staff in Q3 and are available again. So likely may give a greater reply subsequent time we’ve got with this name.

Jürgen Wagner

Okay. Thanks.

Operator

There are not any extra questions.

Rafael Duarte

Okay. Good. So thanks very a lot for everyone that joined the decision. And if in case you have any additional questions, you will get again to us. Thanks.

Camila Japur

Thanks.

Stephan Zizala

Thanks.