Via Optronics Ag (NYSE:VIAO) Q3 2022 Earnings Call Transcript

Via Optronics Ag (NYSE:VIAO) Q3 2022 Earning Call Transcript November 23, 2022

Via Optronics Ag beats earning expectations. Reported EPS is $0.05, expectations were $-0.16.

Operator: Welcome to VIA Optronics Preliminary Third Quarter 2022 Earnings Conference Call and webcast. At this time all participant lines are in listen-only mode. So those of you participating on the conference call, there will be an opportunity for your questions at the end of today’s prepared comments. Please note this conference is being recorded, an audio replay of the conference call will be available on the company’s website within a few hours after this call. I would now like to turn the call over to Sam Cohen, with Alpha IR Investor Relations.

Sam Cohen: Thank you, and welcome. Joining me today are Jurgen Eichner, Founder and Chief Executive Officer; and Dr. Markus Peters, Chief Financial Officer. I’d like to remind everyone that statements made during this conference call relating to the company’s expected future performance, future business prospects or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.Participants are directed to VIA Optronics Form 20-F for a description of certain business risks, some of which may be outside the control of the company that may cause actual results to materially differ from those expressed in the forward-looking statements.We expressly disclaim any duty to provide updates to our forward-looking statements whether as a result of new information, future events or otherwise.

Our earnings release for the preliminary third quarter of 2022 results is posted on the company’s website at via-optronics.com. With that, let me now turn the call over to Jurgen for a few opening remarks.

Jurgen Eichner: Yes. Thank you, Sam. Good morning, and thank you all for joining us today. We are delighted to report record quarterly revenue, which exemplifies the strong demand we are seeing across all of our end markets. We grew top line revenue by 27.3% with 39.2% growth in our Display Solutions segment, driven by growth in the automotive market as well as in the industrial area. In the third quarter, we benefited from increased production output at our Nuremberg headquarters and increased demand and order volume for the automotive and industrial end markets. We continue to expect increased adoption of our innovative and cutting-edge displays as both automotive and industrial vehicles demand are more robust. Sunlight readable, weather resistant displays, camera and sensing as well interior vivid and crisp optical solutions are needed.

Our capabilities, which allow us to provide customizable technology with unique specifications and the high amount of in-house production content avoiding going through suppliers, separate VIA from its competitors and allow us to address the accelerated — accelerating needs of customers today. I’m very proud on sort of how our teams executed in the third quarter, delivering positive EBITDA despite ongoing global supply chain challenges. Elevated freight costs, which were a headwind in previous quarters, are now easing, and we have begun to see the benefits of the previously announced performance improvement projects in our profitability and cash flows. The cost savings and pricing initiatives we have implemented start being reflected in our results this quarter as we continue to renegotiate with customers and suppliers.

Also, we see a softer demand from the additional car OEMs in Q4.Going forward, we believe that these activities will continue to help improve our margin profile and position the company for long-term sustainable profitability. This quarter, we announced the appointment of Roland Chochoiek, as Chief Marketing Officer CMO. Roland has been actively creating a successful go-to-market strategy and promoting the new and innovative technologies of VIA to our customers and partners. In conjunction with the appointment of Roland Chochoiek as CMO, the company has brought the marketing organization, the project management team, the team from research and innovation and the strategic sourcing team together under Chochoiek’s leadership. This new alignment will create a more efficient marketing and sales organization and reduce our operating expenses going forward.

As we announced previously, we plan to establish a new camera production line in Thailand. As the desire for driver and operating assistance as well as autonomous driving functions growth, so must the vividness and resolution of camera images. This new equipment will allow VIA to use bare die instead of house sensors, increasing the precision and cost effectiveness of our solutions. Additionally, our camera production in Thailand opens the door for us to market our other solutions in the regions. We are in decision with OEMs interested in the new functions that we provide with our touch screens and the overall dashboard integration. We remain encouraged by the strength of our growing project pipeline, as we continue to focus on higher-value projects that will support margins.

Additionally, we continue to execute our strategy with a target of EUR 500 million in annual revenue by 2026. We currently maintain awarded business of approximately EUR 250 million, which supports this forecast. With that said, now I’d like to turn the call over to Markus for a review of our third quarter 2022 performance and full year outlook.

Markus Peters: Thank you, Jurgen, and good morning, and good afternoon to everyone. I will start by reviewing our financial and operating performance for the third quarter 2022, then I will outline our outlook for the fourth quarter and the full year 2022.For the first — for the third quarter, total revenue of EUR 62.9 million increased by 27.3% from EUR 49.4 million in the third quarter of 2021, driven by further growth in the Display Solutions segment. Display Solutions revenue of EUR 58.6 million increased by 39.2% from EUR 42.1 million in the third quarter of 2021, driven primarily by growth in the automotive end market. Sensor Technologies revenue of EUR 4.3 million decreased by 41.1% from EUR 7.3 million in the third quarter of 2021 due to slower demand in the consumer end market after a record turnover in the prior period.

We continue to strive to overachieve and meet the demands of those that require our products and solutions. Revenue from the automotive end market increased 46% in the third quarter 2022 and accounted for 44% of Display Solutions revenue, driven by strong demand for our solutions. Revenue related to the industrial and specialized applications end market decreased 7% in the third quarter 2022 and accounted for 27% of Display Solutions revenue. Gross profit margin decreased to 8.6% from 13.8% in the third quarter of 2021. Display Solutions gross profit margin of 8.9% decreased from 10.9% in the third quarter 2021 due to ongoing margin pressure, material and labor cost increases and higher logistic costs. Sensor Technologies gross profit margin of 7% decreased from 26% in the third quarter of 2021, driven by changed market conditions and lower utilization.

Research and development expenses decreased slightly to EUR 1.4 million from EUR 1.5 million in the third quarter of 2021 and is in line to support our long-term strategy. General and administrative expenses of EUR 5 million decreased from EUR 5.1 million in the third quarter of 2021 due to improvements in our cost structure. Operating income was EUR 2.1 million in the third quarter of 2021 compared to operating income of EUR 6 million in the third quarter of 2021. Net income was EUR 1.2 million or EUR 0.27 per basic and diluted share compared to net income of EUR 0.1 million or EUR 0.002 per basic and diluted share in the third quarter of 2021. EBITDA was EUR 3.7 million in the third quarter 2022 compared to an EBITDA of EUR 2 million in the third quarter of 2021.

Display Solutions EBITDA loss was EUR 2.4 million. Compared to EBITDA of EUR 1.5 million in the third quarter of 2021, driven by operational performance as well as onetime effects. Sensor Technologies EBITDA loss was EUR 0.2 million compared to positive EUR 1.1 million in the third quarter of 2021.Other segment’s EBITDA was EUR 1.5 million compared to EBITDA loss of EUR 0.4 million in the third quarter of 2021, driven by onetime effects. We finished the third quarter with cash and cash equivalents of EUR 54.3 million, up from EUR 53.3 million at the end of the second quarter. This slight increase while expanding operations was supported by ongoing improvements in inventory and cash management. For the fourth quarter of 2022, we expect total revenue in the range of EUR 37 million to EUR 42 million.

For the full year 2022, we are raising our revenue growth guidance to a range of approximately 10% to 13% compared to 2021.Again, this forecast is based and may be influenced by our planned sales portfolio adjustments, a potential slowdown in the consumer end market and a potential component shortage in the camera business as well as the overall economic uncertainty. We had very strong sales in the third quarter of 2022, and we will continue to work hard to improve our profitability further and further optimize our working capital and exercise financial discipline to meet our strategic goals. With that financial overview, I’d like now to turn the call back over to Jurgen for a few closing comments.

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Jurgen Eichner: Thank you, Markus. As you heard, we are very pleased with what we achieved during the third quarter in terms of improving our margins and returning to profitability and feel confident about our prospects for the remainder of the year. Despite a challenging macroeconomic environment, there remain strong structural tailwinds in the market that we operate in, and we remain well positioned to capture the expanding applications and use cases for our products. Our financial discipline remains strong, and we have a solid base from which we can deliver strong growth and shareholder value in the years to come. Thank you for your continued support. That concludes our prepared remarks, and I’ll now turn the call over to the operator for Q&A.

Operator: Our first question today is from Anthony Stoss from Craig Hallum. Your line is now open.

Anthony Stoss: Good morning, guys. I have quite a few questions actually. Maybe if you could, Jurgen, take a look out into 2023, maybe comment about the number of design wins that you have that you think will go into production in 2023 versus what you had maybe in 2022. Perhaps give us a guess as to revenue growth rates? But more importantly, on the gross margin front, again, this was always part of your plan to increase them as part of the IPO? What progress have you made in it? Is purely your cost side and what you’re quoting your customers? Any help would be appreciated on kind of revenue growth rate and gross margins for next year?

Jurgen Eichner: Many questions in one. So with regards to next year in terms of projects and ramp-up. So for the big projects, we are expecting one more project to ramp up. I mean we are having a few smaller projects ramp up, but one big one facing in next year. With regards to cost and margins. So during the course of this year, we had a lot of discussions with customers about cost up and price up and how we can improve and how we can actually forward the cost for additional trade and so on to the customers. So they are all in, let’s say, to my opinion, in good shape. Of course, nobody was happy about the cost increases, but the understanding was there and customers basically accept it. However, it’s not easy for everyone. It was also not as easy as for other companies for us to increase the price throughout the board without any arguments.

So we discussed in detail with every customer. Not all the discussions are over. Some are going to be closed hopefully by the — before the end of the year. And for the next year, I think we should be out of the group with the price adjustment and everything. Now with regards to the margins, I have to say that we are still following our initial target. The only thing or the only thing which is a big thing which happened over during the course of the last two years, that the customers actually used the COVID pandemic to drive down the overall prices. So the margins, even in the automotive market became tighter. But this is the main reason for us to phase in and to target system designs to have more added value, more content in the products that we deliver, which should bring us back on track.

There are a lot of reorganizations in our product portfolio and market approach in regards to sales and marketing and also being done together with Roland Chochoiek, the new CMO and restructures in the sales force. So we’ll implement that and start to push for that in — during the course of next year. So tighter margins from existing products and existing customers, overall, whether it’s in the automotive or even definitely in the consumer market, but our plan again is to deliver more value to get up in the margin. So we still think that, based on what we know today, this is possible with what we have in-house. And we push on that to that kind of product portfolio hardly on the sales front.

Anthony Stoss: Okay. Just shifting back to kind of expectations on revenue for next year. You commented about a goal of EUR500 million in revenues in 2026. Help us understand or bridge the gap getting from where you’re at now, what that looks like in 2023, ’24, ’25? Is it somewhat linear or is it spike up in 2025? I’d love to hear your thoughts on kind of next couple of year’s revenue growth.

Jurgen Eichner: It’s — we are — let’s say, it’s kind of difficult to answer because at the end of the day, if — let’s give you one example. We are working on 1 project. If that kicks in, it would be a spike in 2025-’26. So it will be a drastic increase. And there are others which would be — which are in between. So it could be — so we are planning for a soft growth over the next years, similar to what you have seen maybe. But as soon as those project come in we will see a drastic increase. So maybe most likely towards — not coming year, also not the following year, but the years. So the years after, if we are successful with the acquisitions, there will be a stronger growth.

Anthony Stoss: Okay. Thank you.

Operator: At this time, we do have no further questions, so I’ll hand you back over to Jurgen Eichner for closing remarks.

Jurgen Eichner: Yes. Well, as usual, I’d like to thank everybody for participation in the call. Again, we’ll see quite a drastic change in the future in terms of the environment. But on the other hand, we see that our markets are drastically increasing. The potential for our products is growing every day, I have to say, and especially in the field of electronic cars, we are seeing tremendous growth opportunity, but not only there. So again, thank you for the call. I’d like to hear you next time, again. Thank you. Bye-bye.

Operator: That concludes today’s VIA Optronics Q3 ’22 earnings call. You may now disconnect your line.