X-FAB Fourth Quarter and Full Year 2020 Results

Regulatory News:
X-FAB (Paris:XFAB)

Highlights Q4 2020:

› Revenue was USD 135.9 million, clearly exceeding the initial guidance of USD 120-127 million, up 20% year-on-year (YoY) and up 41% quarter-on-quarter (QoQ)

› Record quarterly bookings at USD 190.7 million, up 49% YoY and up 71% QoQ

› Record medical revenue at USD 12.0 million, up 90% YoY and up 57% QoQ

› EBITDA margin of 16.6%, clearly above the 10-14% guidance

› EBITDA was USD 22.5 million, up USD 25.1 million YoY and up USD 17.8 million QoQ

› EBIT was USD 3.6 million, up USD 25.5 million YoY and up USD 17.6 million QoQ

Highlights 2020:

› Revenue was USD 477.6 million, down 6% year-on-year (YoY)

› EBITDA margin of 12.7% vs. 5.6% in 2019

› EBITDA was USD 60.4 million, up USD 32.0 million YoY

› EBIT was USD -14.6 million, up USD 29.2 million YoY

› Net profit was USD 13.5 million, up 62.1 million YoY

Outlook:

› Q1 2021 revenue is expected in the range of USD 145-152 million with an EBITDA margin in the range of 16-20%.

› The guidance for Q1 2021 is based on an average exchange rate of 1.21 USD/Euro.

› Management expects full year 2021 revenues in the range of USD 560-580 million with an EBITDA margin in the range of 16-20%.

Revenue breakdown per quarter:

¹ Consumer, Communications & Computer

Business development

X-FAB closed the fourth quarter with Q4 revenues amounting to USD 135.9 million, clearly exceeding the initial guidance range of USD 120-127 million. Revenues recorded an increase of 20% compared to the same quarter last year and were up 41% quarter-on-quarter. In the fourth quarter, business developed positively across all markets.

Full year revenues totaled at USD 477.6 million, which is a 6% decline compared to 2019. While prototyping activities remained at a high level, production revenues decreased 7%, reflecting the impact of the COVID-19 pandemic on the world economy. The main contributor to overall revenue decline in 2020 was the CCC business, which decreased 22% year-on-year. This was essentially driven by the planned decrease of the legacy business at X-FAB France.

Quarterly revenues in X-FAB’s core business, namely automotive, industrial and medical, amounted to USD 104.7 million, up 26% year-on-year and up 45% quarter-on-quarter. In 2020 financial year, revenues in the core markets totaled USD 366.6 million, an increase of 1% when compared to 2019. While both, X-FAB’s industrial and medical businesses recorded a year-on-year growth of 6% and 19% respectively, automotive revenues decreased 3%.

After a strong pick up in September, bookings remained at a high level throughout the fourth quarter reaching a new quarterly record of USD 190.7 million and partially offsetting low order intake earlier in the year. Fourth quarter bookings increased 49% year-on-year and 71% quarter-on-quarter.

Prototyping and production revenue per quarter and end market:

In the fourth quarter, X-FAB’s automotive revenues increased significantly reflecting the recovery which started towards the end of the third quarter after the COVID-19-related fall during the summer months. New product introductions have further contributed to the positive revenue development.

Industrial production revenues recorded a substantial increase in the fourth quarter, which is mainly attributable to new product launches in silicon carbide but also to the general recovery after the previous quarters’ weakness.

X-FAB’s quarterly medical revenues reached an all-time high with prototyping revenues performing particularly well. This is mainly due to product launch related activities which are expected to be converted into production revenue going forward.

The quarterly growth of X-FAB’s CCC business reflects the ongoing recovery across all customers and applications. This is in contrast with the substantial decline of full year CCC revenues predominantly resulting from the planned decrease of the legacy business at X-FAB France. In the fourth quarter, the share of the French site’s revenues based on X-FAB technologies amounted to 15% and is expected to significantly increase in the second half of 2021.

In the fourth quarter, X-FAB achieved record prototyping revenues amounting to USD 22.2 million, which is an increase of 29% year-on-year and 39% quarter-on-quarter. The strong growth in quarterly prototyping revenues was mainly driven by the activities of a major medical customer in order to prepare the start of volume production. Full year prototyping revenues totaled USD 67.7 million, recording a growth of 2% against 2019.

Operations update

In light of strong order intake in the fourth quarter, X-FAB’s main focus is to ensure a reliable supply to its customers by managing the ramp-up of capacities and by execution excellence despite the sudden increase in demand. At some sites, staff availability is limited due to quarantine regulations. However, this is seen as a temporary effect and X-FAB aims to increase the wafer output in all factories while safeguarding the health and well-being of X-FAB’s employees during the COVID-19 pandemic.

X-FAB’s silicon carbide (SiC) business recorded quarterly revenues of USD 6.3 million, an increase of 14% year-on-year and up 20% quarter-on-quarter. SiC revenues for the full year came in at USD 21.0 million, a 10% decline compared to the previous year, while annual SiC production quantity was up 26% year-on-year. The revenue decline is partially due to the fact that one customer started to provide X-FAB with their own SiC base wafers for the manufacture of their products whereas these were previously sourced and invoiced directly by X-FAB. While the revenue invoiced to the client was lower, the value-add provided by X-FAB was unchanged.

Despite a difficult environment in 2020, X-FAB recorded a substantial year-on-year increase in silicon carbide bookings and more than doubled the number of new designs (tape-outs) compared to 2019. As at year-end, X-FAB had 23 silicon carbide customers, eight of which have started volume production. The process to qualify X-FAB’s in-house SiC epitaxy with various customers is progressing well. More than ten customers are either in the process of qualification or have already started SiC epitaxy production at X-FAB. X-FAB’s new SiC customer pipeline continues to grow and at the same time existing customers keep expanding their technology portfolio, pointing to a positive development for X-FAB’s SiC business going forward.

Capital expenditures in the fourth quarter amounted to USD 14.6 million, down 6% year-on-year. In 2020, they totaled USD 38.5 million, which is a decrease of 51% compared to the previous year. In light of the COVID-19 pandemic and its impact on the global economy, capital expenditures were low and mainly related to the finalization of expansion projects which kicked off mid-2019. Capex spending in 2021 will largely depend on the business development going forward as well as the outlook for the following years. It is expected to range from USD 50 million up to USD 70 million.

Financial update

EBITDA of the fourth quarter amounted to USD 22.5 million with an EBITDA margin of 16.6%, exceeding the guided 10-14%. This is mainly attributable to the strong revenue increase in the fourth quarter as well as X-FAB’s cost-saving initiatives with a variety of cost reduction measures related to staff, travel, electricity and raw materials. The cost-saving program, initiated in 2019 in response to the automotive crisis, was continued and intensified after the COVID-19 pandemic set in, yielding significant savings throughout the year and laying the foundation for greater profitability with continued growth going forward.

The inventory of unfinished and finished goods increased by USD 2.9 million, contributing positively to the profitability of the fourth quarter.

Cash and cash equivalents at the end of Q4 were at USD 205.9 million, up 15% against the end of the previous quarter, primarily due to strong revenue increase. Compared to the end of 2019, the cash position increased 19%, as a result of the cost-saving program.

Throughout the year, X-FAB continued its efforts to increase the share of Euro-denominated sales in order to achieve a natural currency hedging of its business. In the fourth quarter, the share of Euro-denominated sales was at 34% with approximately 40% of costs being incurred in Euro. 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 fourth quarter of 2020 was 1.19 leading to an EBITDA margin of 16.6%. At a constant exchange rate of 1.11, as experienced in the fourth quarter of last year, the EBITDA margin would have been 17.5%.

Exceptional finance income

In 2013, Sarawak Technology Holdings Sdn. Bhd (STH), a Malaysian government-linked entity and shareholder of X-FAB, granted a long-term incentive up to USD 72.0 million to X-FAB Sarawak Sdn. Bhd to finance R&D activities in the State of Sarawak. This grant was scheduled to be paid in 15 annual installments of up to USD 4.8 million.

Further to previous agreements, STH held redeemable preference shares in X-FAB Sarawak Sdn. Bhd for an amount of USD 50 million, due for bullet repayment to STH in 2030 (recognized as a financial non-current liability at discounted present value).

In October 2020, X-FAB Sarawak and STH signed a written agreement stating that STH would waive its rights on the redeemable preference shares against the cancellation of the still unrecognized and outstanding R&D grants of USD 38.4 million.

This agreement resulted in a one-off net non-cash financial gain of USD 31.8 million for X-FAB Sarawak in the fourth quarter of 2020 (as a result of the cancellation of a future liability at a discounted present value).

In the fourth quarter and as a result of the above agreement, accrued R&D subsidies booked in the first half of 2020 were reversed, which explains the exceptionally high R&D spending in the fourth quarter.

Organizational change

Effective January 1, 2021, Dr. Dirk Drescher was appointed Vice President Operations of X-FAB group replacing Dr. Manfred Riemer, who retired after having served as Chief Operations Officer for the past 15 years. Dr. Dirk Drescher joined X-FAB in 2016 as site manager and managing director of X-FAB Dresden and later on also served as CEO of X-FAB France.

Management comments & outlook

Rudi De Winter, CEO of X-FAB Group, said: “It is great to see demand is back, and after this strong uptick in bookings, it is our topmost priority to satisfy our customers’ needs. Going forward, I am confident that X-FAB is well positioned for future growth, even though there is still uncertainty with respect to the development of the global economy. We have successfully streamlined our cost structure over the past two years, which provides a solid base for the increase in profitability. I am very excited about our medical business, in particular the lab-on-a-chip applications for reliable and high-throughput medical testing and analysis. The demand for such applications was further pushed by the COVID-19 pandemic, and based on the projects in the pipeline, we expect those to be a long-term growth driver for X-FAB. We also see our automotive business coming back strongly. The progression in the electrification of cars will contribute to the growth of X-FAB’s auto revenues, thanks to our silicon carbide technology offering, high-voltage CMOS technologies and on-chip high-voltage isolation capabilities.”

Procedures of the independent auditor

The statutory auditor, KPMG Bedrijfsrevisoren – Réviseurs d’Entreprises BV, represented by Herwig Carmans, has confirmed that the audit procedures, which have been substantially completed, have not revealed any material adjustments which would have to be made to the condensed consolidated financial information as of and for the year ended December 31, 2020, included in the annual announcement of X-FAB Silicon Foundries SE.

X-FAB Quarterly Conference Call

X-FAB’s fourth quarter results will be discussed in a live conference call on Thursday, February 11, 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/2264108.

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 February 11, 2021, 11.30 p.m. CET until February 18, 2021, 11.30 p.m. CET. The replay number will be +44 (0) 3333009785, conference ID 2264108.

The first quarter 2021 results will be communicated on April 29, 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.

Forward-looking statements contained in this press release regarding trends or current activities should not be taken as a report that such trends or activities will continue in the future. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless legally required. You should not place undue reliance on any such forward-looking statements, which speak only as of the date of this press release.

The information contained in this press release is subject to change without notice. No re-report or warranty, express or implied, is made as to the fairness, accuracy, reasonableness or completeness of the information contained herein and no reliance should be placed on it.

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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