X-FAB Third Quarter 2020 Results

Regulatory News:
X-FAB (Paris:XFAB)

Highlights Q3 2020:

- Revenue was USD 96.1 million, within the guidance of USD 91-97 million, down 26% year-on-year (YoY) and down 19% quarter-on-quarter (QoQ)

- Bookings were USD 111.6 million, down 8% YoY and up 12% QoQ, recording a substantial increase in September

- EBITDA margin of 4.9% above the 0-4% guidance

- EBITDA was USD 4.7 million, down USD 7.9 million YoY and down USD 11.1 million QoQ

- EBIT was USD -13.9 million, down USD 7.8 million YoY and down USD 11.2 million QoQ

- Net loss was USD -12.9 million, down USD 4.7 million YoY and down USD 7.0 million QoQ

Outlook:

- Q4 2020 revenue is expected to rebound markedly in the range of USD 120-127 million with an EBITDA margin in the range of 10-14%.

- The guidance for Q4 2020 is based on an average exchange rate of 1.18 USD/Euro.

Revenue breakdown per quarter:

¹ Consumer, Communications & Computer

Business development

As anticipated, the third quarter was marked by weaker sales. Quarterly revenues came in at USD 96.1 million, at the upper end of the guided USD 91-97 million. Revenues were down 26% year-on-year and 19% quarter-on-quarter. Despite this fall in revenue and as a result of the company’s ongoing cost-saving initiatives, X-FAB has reached an EBITDA margin of 4.9% exceeding its 0-4% guidance. Bookings have strongly picked up since the start of September. This is a positive sign for business development going forward, underpinned by a solid return to growth in the fourth quarter with revenue guidance in the range of USD 120-127 million.

Quarterly revenues in X-FAB’s core business, namely automotive, industrial and medical, amounted to USD 72.3 million, down 23% year-on-year and down 22% quarter-on-quarter.

In the third quarter, the Automotive as well as the Consumer, Communications & Computer (CCC) businesses were the main contributors to the strong decline, which was in line with expectations and primarily caused by the impact of the COVID-19 pandemic on the global economy.

Automotive revenues for the third quarter decreased 33% compared to the same quarter last year and were down 34% quarter-on-quarter due to a drop in automotive bookings in the previous quarter, which was related to client’s inventory corrections. Production revenues (which excludes prototyping) decreased year-on-year (-33%) as well as quarter-on-quarter (-36%). Automotive prototyping revenues declined 27% year-on-year due to an exceptionally strong quarter last year but were up 13% quarter-on-quarter.

Industrial revenues for the third quarter were down 2% year-on-year and flat quarter-on-quarter, both for production and prototyping. Production revenues decreased 7% year-on-year, while prototyping revenues increased 12%.

X-FAB’s medical revenues of the third quarter declined 12% year-on-year and increased 6% quarter-on-quarter. The decline is mainly caused by a 27% year-on-year drop in production revenues due to an exceptionally high quarter last year. Quarter-on-quarter, medical production revenues increased by 6%. Medical prototyping revenues have been growing steadily over the past quarters and, in the third quarter, recorded a 15% growth year-on-year and 5% increase compared to the previous quarter.

In the third quarter, X-FAB’s CCC business decreased 36% year-on-year and 8% quarter-on-quarter. Prototyping revenues decreased 39% compared to the same quarter last year and slightly increased quarter-on-quarter. CCC production revenues were down 35% year-on-year and down 10% quarter-on-quarter. The decline was not only driven by the ongoing gradual decrease of the legacy business at X-FAB France but also, to some extent, by the impact of the general economic slowdown related to COVID-19.

In the third quarter, the share of the French site’s revenues based on X-FAB technologies amounted to 17%.

Prototyping revenues of the third quarter totaled at USD 16.0 million, down 7% year-on-year and up 3% quarter-on-quarter.

While bookings remained relatively weak over the first two months of the third quarter, there was a strong pick up towards the end of the reporting period with half of the quarterly order entries booked in September, mainly coming from automotive customers. Overall, bookings were at USD 111.6 million, up 12% quarter-on-quarter and down 8% year-on-year.

Operations update

The various safety measures implemented at all locations in response to the COVID-19 pandemic helped to ensure the health and well-being of X-FAB’s employees in the third quarter and will be pursued going forward contributing to the continuity of production.

In response to the low utilization levels and as part of X-FAB’s cost-saving initiatives, X-FAB’s manufacturing facilities were temporarily shut down in July. While this was initially planned to take place later in the third quarter, X-FAB brought those fab shutdowns forward, following a cyber attack at the beginning of July. After all the systems were successfully restored and production was resumed, all sites were in position to execute all orders received and catch up on any delays. At the same time, X-FAB has also taken measures to upgrade its cyber security across the Group.

The silicon carbide (SiC) business recorded quarterly revenues of USD 5.2 million, which is a 20% decline year-on-year, essentially due to the impact from the COVID-19 slowdown on the global economy but also in light of a strong comparative quarter. This is mainly reflected in the fall of SiC production revenues down 56% compared to the same quarter last year, whereas the SiC prototyping revenues recorded a growth of 42% year-on-year. The pipeline of new projects remains strong with existing customers constantly expanding their portfolio of offerings. In addition, X-FAB won a new customer for its SiC business bringing the total up to 22. The process of qualifying X-FAB’s in-house SiC epitaxy line with various customers keeps progressing well with additional customers having initiated this process during the quarter.

Quarterly capital expenditures amounted to USD 6.8 million, down 64% year-on-year.

Financial update

Despite the decline in quarterly revenues, the EBITDA of the third quarter amounted to USD 4.7 million with an EBITDA margin of 4.9%, exceeding the guided 0-4%. This is mainly attributable to X-FAB’s ongoing cost-saving initiatives with a variety of cost reduction measures related to staff, travel, electricity and raw materials. The use of short-time work schemes in France and Germany has been a major contributor to savings during the quarter.

The inventory of unfinished and finished goods decreased by USD 0.5 million, which had a negative impact on profitability for the third quarter.

Cash and cash equivalents at the end of the quarter were at USD 179.7 million, down 7% versus the end of the previous quarter, which is primarily due to the drop in revenues.

X-FAB is well on track to achieve a natural currency hedging of its business thanks to the continued efforts to increase the share of Euro-denominated sales. In the third quarter, the share of Euro-denominated sales reached 35%. X-FAB aims to further increase the Euro share of sales to limit the impact of exchange rate fluctuations on its profitability.

The actual US-Dollar/Euro exchange rate for the third quarter of 2020 was 1.17 leading to an EBITDA margin of 4.9%. At a constant exchange rate of 1.11, as experienced in the third quarter of last year, the EBITDA margin would have been 5.8%.

Management comments & outlook

Rudi De Winter, CEO of X-FAB Group, said: “While in line with expectations, the third quarter was exceptionally weak in terms of revenues; however, I am confident that we have clearly passed the lowest point. The continued efforts to improve the cost structure across the group resulted in a better than planned EBITDA and is at a satisfactory level going forward. While uncertainties remain high, in particular due to the COVID-19 pandemic and its impact on the global economy, we do see strong positive signs. Bookings have been recovering significantly since September, mainly attributable to the automotive business indicating that customers in this segment are returning to normal order patterns. While remaining cautious going forward, it remains our top priority to ensure that we meet the supply of our customers and the increased demand of the market. Besides the general recovery of our main market automotive, I am very excited about the opportunities in the medical segment driven by the point-of-care diagnostics as well as lab-on-a-chip applications, and also the silicon carbide business to support the ongoing electrification in cars and other equipment.”

X-FAB Quarterly Conference Call

X-FAB’s third quarter results will be discussed in a live conference call on Tuesday, October 27, 2020, at 6.30 p.m. CET. The conference call will be in English. Please register in advance of the conference using the following link: http://emea.directeventreg.com/registration/8513379.

Upon registering, you will be provided with participant dial-in numbers, Direct Event passcode and a unique registrant ID. In the 10 minutes prior to the call, you will need to use the conference access information provided in the email received at the point of registering.

The conference call will be available for replay from October 27, 2020, 11.30 p.m. CET until November 3, 2020, 11.30 p.m. CET. The replay number will be +44 (0) 3333009785, conference ID 8513379.

The fourth quarter 2020 results will be communicated on February 11, 2021.

About X-FAB

X-FAB is the leading analog/mixed-signal and MEMS foundry group manufacturing silicon wafers for automotive, industrial, consumer, medical and other applications. Its customers worldwide benefit from the highest quality standards, manufacturing excellence and innovative solutions by using X-FAB’s modular CMOS processes in geometries ranging from 1.0 to 0.13 µm, and its special silicon carbide and MEMS long-lifetime processes. X-FAB’s analog-digital integrated circuits (mixed-signal ICs), sensors and micro-electro-mechanical systems (MEMS) are manufactured at six production facilities in Germany, France, Malaysia and the U.S. X-FAB employs about 3,800 people worldwide.
For more information, please visit www.xfab.com.

Forward-looking information

This press release may include forward-looking statements. Forward-looking statements are statements regarding or based upon our management’s current intentions, beliefs or expectations relating to, among other things, X-FAB’s future results of operations, financial condition, liquidity, prospects, growth, strategies or developments in the industry in which we operate. By their nature, forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results or future events to differ materially from those expressed or implied thereby. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein.

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Condensed Consolidated Statement of Profit and Loss

Amounts in the financial tables provided in this press release are rounded to the nearest thousand except when otherwise indicated, rounding differences may occur.

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Cash Flow

Condensed Consolidated Statement of Cash Flow – con’t

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