VIA optronics AG (NYSE:VIAO) Q4 2022 Earnings Call Transcript

VIA optronics AG (NYSE:VIAO) Q4 2022 Earnings Call Transcript March 28, 2023

Operator: Hello everyone and welcome to the VIA optronics Fourth Quarter 2022 Financial Results Conference Call. And thank you for standing by. My name is Davey, and I’ll be coordinating your call today. I would now like to hand over to your host, Samuel Cohen, with Alpha IR Group to begin. So Samuel, please go ahead.

Samuel 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 will cross the wire shortly for the preliminary unaudited fourth quarter of and full year results of 2022 and will be shortly posted on the company’s website at via-optronics.com. Please note preliminary unaudited results that company did not provide segment level detail this quarter. Unaudited group financial statements we made available from the required 20-F filing period. With that, let me now turn the call over to Jurgen for a few opening remarks.

Jurgen Eichner: Thank you, Sam. Good morning and thank you all for joining us today. In today’s call, we will cover our fourth quarter and full year 2022, as well as share our outlook for 2023. Total revenue for the fourth quarter was EUR54.9 million, an increase of 18.6% from EUR46.3 million in the fourth quarter of 2021. Total revenue for the full year 2022 was EUR218.5 million, an increase of 20.9% from EUR180.8 million in 20 21. Top line growth exceeded our expectations and was driven by continued strength in our display and solutions segment. We were pleased with our fourth quarter results, capping an important year in which our team has demonstrated resolve — overcoming challenges presented by the broader macroeconomic environment, including supply chain efficiencies and ongoing effects of the COVID-19 pandemic, which impacted our operational results in 2021 and 2022.

As I step back and look at the full year, we made significant strides to resolve such impacts by cost down activities and sales price adjustments. Even so, the measures did not cover the whole year as they phased in during the course of 2022, we can already show significantly improved results in 2022. Furthermore, we did consolidate and strengthen the organization, expanding our Nuremberg facility and completing our production ramp up, while implementing cost savings measures to expand margins. Further improvements will phase in in 2023, like production efficiency measures, shared service savings and others. A big contributor will be the production number (ph) smoothly showing that we can produce even higher quantities compared to what we planned.

The production line was enhanced to enable significantly higher throughput. Additionally, we continue to separate ourselves from competitors by further pushing our display and sensor technology, as well as the camera portfolio. This enables us to fulfill the specifications of our automotive and industrial customers, which are ever changing and advancing. And we remain in an optimal position to exceed their unique requirements. The growing demand for some light readable in and outages displays as well as sensors and cameras has resulted in increased order volume for the cutting edge technologies solutions. We are excited about our healthy pipeline of projects with Fortune 400 companies. Additionally, we are exploring opportunities to extend our solution for car interiors with interactive display and touch functionality with industrial partners.

We believe that will drive considerable growth in the future and look forward for sharing additional details later this year as it fits the demand and the requirement of the changing automotive supply chain. Turning to our cost savings initiatives. Our shared service center in the Philippines will allow us to consolidate our administrative and global services, which will drive synergies and reduce operating expenses, and we recently kicked off our first shared services activities in the Philippines. We believe that this combination will allow us to redistribute resources and free up capital to improve business critical functions and focus on growth opportunities in each of the three end markets. Looking ahead to 2023, it appears that elevated freight costs are beginning to ease and our measures taken mitigate the impacts going forward.

In 2023, we anticipate the further realization of the previously announced performance improvements and continuously focus on higher value projects that will support margins. Going forward, we believe that these initiatives will continue to help improve our margin profile and position the company for long term sustainability and profitability. Despite a challenging macro environment — macroeconomic environment, there are strong structural tailwinds in the end markets in which we operate and we remain well positioned to capture the expanding applications and use cases for our products. The increased adoption of electronic vehicles and sophistication of applications in these vehicles support our long term growth forecasts and we continue to believe that we provide a differentiated offering to auto and industrial OEMs. With that said, I’d now like to turn the call over to Markus for a review of our fourth quarter and full year 2022 performance and the full year outlook.

Markus?

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 fourth quarter and the full year 2022. Then I’ll outline our outlook for the first quarter and full year 2023. For the fourth quarter, total revenue of EUR54.9 increased by 8.6% from EUR46.3 million in the fourth quarter of 2021, driven by further growth in our display solutions segment, supported by strength in the automotive end market. Sensor technologies revenue decreased compared to the fourth quarter of 2021 due to lower demand in the consumer end market. Gross profit margins increased to 16.6% from 13.7% in the fourth quarter of 2021 due to our actual product mix, favorable FX effect and customer related onetime effect.

Display Solutions gross profit margin increased compared to the fourth quarter of 2021 despite margin pressure linked to increases in material costs, inflation, logistic expenses, as well as an overall competitive environment. Sensor Technologies gross profit margin decreased due to lower post pandemic demand and consequently lower utilization. Research and development expenses increased compared to the fourth quarter of 2021. Selling, general and administrative expenses decreased compared to the fourth quarter of 2021, due to further improvements in the administrative cost structure in favor of onetime effect the fixed costs could be held overall stable. Operating loss was EUR4.4 million in the fourth quarter 2022 compared to an operating loss of $7.7 million in the fourth quarter of 2021.

Loss after taxes from continuing operations attributable to VIA optronics AG shareholders was EUR6 million or EUR1.31 per share in the fourth quarter of 2022 compared to a loss after taxes from continuing operations attributable to VIA optronics AG shareholders of EUR8 million or EUR1.77 euros per share in the respective quarter of 2021. EBITDA loss was EUR2.7 million in the fourth quarter 2022 compared to an EBITDA loss of EUR6.1 million in the fourth quarter of 2021. Display Solutions EBITDA increased compared to the fourth quarter of 2021, driven by operational performance and nonrecurring events. Sensor Technologies EBITDA decreased slightly compared to the fourth quarter of 2021 and other segments’ EBITDA decreased compared to the fourth quarter of 2021.

Turning to the full year financial performance. Total revenue of (ph) million increased 20.9% from EUR180.8 million compared to 2021. The increase was mainly driven by strong performance in the Display Solutions segment supported by increased demand for our solutions, especially within the automotive end markets, as well as favorable foreign exchange effect. Sensor Technologies revenue decreased compared to 2021, due to especially — sorry, the Sensor Technologies revenue decreased compared to 2021, due to lower demand, especially in the third and fourth quarter of 2022 in the consumer end markets after a record turnover in the prior year. Gross profit margin was 10.3%, down from 11.3% in 2021. Our annual results were impacted by FX effects resulting from a stronger U.S. dollar compared with the euro over the year.

Display Solutions gross profit margin slightly increased compared to 2021 despite ongoing margin pressure in a highly competitive environment. Sensor Technologies gross profit margin decreased compared to 2021 due to the lower post pandemic demand and consequently lower utilization. Research and development expenses in 2022 increased due to the support of the company’s future strategy to expand into integrated display solutions. Moreover, Germaneers GmbH was fully integrated into 2022 results. Selling expenses and general and administrative expenses decreased since 2022 compared to 2021 due to improved cost discipline in the administrative function and onetime effect. Overall, the fixed cost structure could be held stable despite an increased revenue.

Operating loss was EUR6.7 million compared to an operating loss of EUR9.5 million in 2021. Loss after taxes from continuing operations attributable to VIA optronics AG shareholders was EUR9.9 million or EUR2.17 per share in 2022 compared to a loss after taxes from continuing operations attributable to VIA optronics AG shareholders of EUR11.8 million or EUR2.59 per share in 2021. Total EBITDA loss was EUR0.2 million in 2022 compared to an EBITDA loss of EUR3.4 million in 2021. Display Solutions EBITDA increased compared to 2021, driven by improved operational performance and nonrecurring effects. Sensor Technologies and other segments EBITDA decreased compared to 2021. For the first quarter of 2023, we expect total revenue in the range of about EUR40 million euros to EUR45 million.

For the full year 2023, the company expects the revenue to be around 2022 levels as we experience increased volatility in consumer demand. The company is increasingly focusing on profit over revenue growth and will adjust its portfolio accordingly. VIA will focus on the most promising car models and applications and at the same time intensifies its diversification into industrial applications. Additionally, we will continue to focus on net working capital management. We plan to continue growing our revenue over the upcoming years. But it will most likely not to be linear. This is due to increased volatility in customer demand, new project starting date and sharpening our margin profile. We finished the fourth quarter with cash and cash equivalents, as well as other short term deposits of EUR52.4 million, which will support our strategic growth initiatives.

With that financial overview, I’d like to turn now the call back to Jurgen for a few closing comments. Jurgen?

Jurgen Eichner: Thank you, Markus. As you heard, we went through quite challenging two years in the past and are now back on track. We prioritized profit over growth, drive efficiency and are expanding our portfolio with car interior solutions on top of our interactive display and sensor solutions. To, for example, complete dashboards including our product portfolio. With this set, we maintain our EUR500 million revenue target in 2026 and feel confident about our prospects to improve profitability in 2023. 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.

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Q&A Session

Operator: Thank you. We have a question registered from Anthony Stoss from Craig-Hallum. Anthony, please go ahead. Your line is open.

Anthony Stoss: Thank you. Good morning Jurgen and Markus. Just for housekeeping, when can we expect a full income statement with each of the lines rather than the abbreviated one that I’ll put out late today?

Markus Peters: Fair question. As soon as our auditors sign off the (ph) account. So later in April.

Anthony Stoss: I’m sorry, later today, did you say, Markus?

Markus Peters: I’d expect this with the publication of the F-20 later in April.

Anthony Stoss: Okay. Got it. And then Jurgen

Jurgen Eichner: We have the numbers, but not allowed to publish it.

Anthony Stoss: Got it. Okay. Jurgen, on the comments in the press release that you’re going to — you are guiding to flat revenue for 2023 to focus on more profitable business. Can you give us a sense of what your expectations are in gross margins? What you’re willing take? What do you think the full 2023 gross margin might look like?

Jurgen Eichner: Yes. So cannot comment on the percentage of the gross margin in this year, but what I can tell you is — and I think we disclosed that before that we basically eliminated or discontinued some of the low margin consumer projects that we focusing on the higher margin projects, of course, than we have at the end of the day now the work in production and we work on efficiency. So this is all coming together. The final margin target remains what we have been communicating during the IPO. How that will increase over the next years? We will show — communicate on a call, in a follow-up call. But for now I cannot comment on the margin for 2023. As you know, we are still under — we haven’t completed the filing yet?

Anthony Stoss: No, I understand the filing for the Q4. I’m just curious if you’re focusing on — you’re saying in the press release you want to focus on higher profit margin deals or design wins. What’s your goal on gross margins? I mean, what are you not willing to take business wise and what are you willing to take business wise from a gross margin perspective?

Jurgen Eichner: I think that’s probably okay. So our — Markus?

Markus Peters: That’s a complex question. On the one hand, you need to balance your capacity that your capacity is utilized across idle capacity you have. But we, of course, to take in transactions with margin that may be at current level or lower level. However, to become a profitable organization, I think there’s no doubt that we need more profitable and more higher margin deals and have not — we have internally a specific cutoff rate that is significantly — that is higher than the margin we realized right now.

Jurgen Eichner: Maybe from overall direction. So we basically push to get deals where we are margin wise over 20%. Of course, we try to fill — this is what Markus is saying, empty capacity, which will then come up as a mix. With the new portfolio that we are planning that should — maybe we can drive it — the margins more higher? But what you have seen in the last two years and this is one of the reasons why we have not been performing as we all wished was that the automotive industry used the last two years, obviously, to cut margins as much as they can on the supply chain. So this is one of the reasons why we have been affected. Now again, this is why we strive for higher value applications and of course, trying to maintain, let’s say, for the new projects, maintain a margin of at least 20% hoping that this is at the end of the day in three, four, five years from now the average.

Markus Peters: Okay. Go ahead. Go ahead, please.

Anthony Stoss: Yes, this is going to be for you anyways, Markus. So maybe you can tack it on. Can you comment on how many 10% customers you had in the December quarter and what percentage of revenues was your biggest customer?

Markus Peters: How many 10% —

Jurgen Eichner: And what percent of revenues was your biggest — single biggest customer?

Markus Peters: The single biggest customer is a well-known computer producer and our customers in Singapore and in China in the USA. And has published. So this biggest customer probably have, I think, a portfolio of five to 10 deals — customers over 10%, something between five and 10, I guess. So yes, we have to and it also depends how you manage the project.

Anthony Stoss: All right. I’ll just I’ll jump back in the queue. We could take this offline.

Markus Peters: This is over 10% on turnover. Sorry, I said that’s about five customers. Sorry, I did a mistake. I was wrong. I spoke in error. I’m completely misunderstood you. You meant the biggest customers?

Anthony Stoss: Yes. What percent of revenues? 20%, 30% your single biggest customer in the quarter?

Markus Peters: Big customer was (ph). Sorry, I was how I did misunderstood you. Could you rephrase your question, please? Sorry.

Jurgen Eichner: I think Tony wanted to see how many customers do we have which have a revenue share of more than 10%.

Markus Peters: It’s about five, sorry. It was really

Anthony Stoss: Got it. And then —

Markus Peters: Sorry, so I apologize.

Anthony Stoss: And maybe Jurgen, maybe you could even just ballpark this. Your biggest auto customer, what percent of revenue were they?

Jurgen Eichner: I’m not 100% sure, but they should be in the 20% range. Would that be okay to say? I’m not 100% sure.

Markus Peters: About 10% I’d say.

Jurgen Eichner: It’s 10%. Still 10?

Markus Peters: It’s somewhere between 10% and 20% range.

Anthony Stoss: Okay. Okay. Got it. We can take this up offline, but I’ll jump back in the queue for others to ask questions.

Jurgen Eichner : Tony?

Anthony Stoss: Yes. Hello?

Jurgen Eichner: Just a question. Are you next week or in two weeks in the Bay Area?

Anthony Stoss: No. Okay.

Jurgen Eichner: Okay. So I was hoping to meet you. We can chat on our callback here in a little while then. I’ll just jump back questions on the public call.

Operator: We don’t have any further questions registered, Tony, if you want to ask anything else.

Anthony Stoss: No, I think I’m good for now. I’ll follow-up offline. Thank you.

Operator: Thank you. In that case, I will now hand back to the management team for any closing remarks.

Jurgen Eichner: Thank you. I think at the end of the day, I think we try to cover all the questions that you could potentially have given overview over last year and outlook for next year. So the only thing remaining is that, I thank you for the call today. As you have seen, we are excited about our future. We see new opportunities. And we look forward to share these updates with you as we accelerate on our growth paths. Have a great day.

Markus Peters: Thank you. Bye-bye.

Operator: Thank you everyone for joining today’s call. You may now disconnect your lines and have a lovely day.