VIA Optronics AG (NYSE:VIAO) Q1 2022 Earnings Conference Call June 29, 2022 8:30 AM ET
Company Participants
Lisa Fortuna – IR
Jürgen Eichner – CEO and Founder
Dr. Markus Peters – CFO
Conference Call Participants
Andrew Buscaglia – Berenberg
Anthony Stoss – Craig-Hallum
Operator
Hello everyone and welcome to the VIA Optronics AG Q1 2022 Earnings Call. My name is Charlie and I will be coordinating the call today. [Operator Instructions]. I will now hand the call over to your host Lisa Fortuna with Investor Relations to begin. Lisa, please go ahead.
Lisa Fortuna
Thank you and welcome. Joining me today are Jürgen Eichner, Founder and Chief Executive Officer and Dr. Markus Peters, Chief Financial Officer. I would 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 maybe outside of the control of the company that may cause actual results to materially differ from those expressed in our 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 first quarter of 2022 is posted on our company’s website at via-optronics.com. With that let me now turn the call over to Jürgen for his opening remarks.
Jürgen Eichner
Thank you Lisa. Good morning, good afternoon, and thank you all of you for joining us today. We are excited to briefly discuss our financials for the full year 2021 which can also be found on our Form 20-F, highlight our Q1 2022 results and most importantly share our outlook for Q2 and the full year 2022. To begin I would like to take a few minutes to provide an overview of the year’s key achievements over the last year and our go forward business strategy.
In 2021 we had many exciting business developments. We acquired and began the integration with Germaneers, a high tech company focusing on automotive system integration and user interfaces, a well-known high end original equipment manufacturers, OEMs. This is the continuation of a successful partnership which has allowed us to provide advanced cockpit solutions with our display and touch components including new developments and functionality overall. We formed a strategic partnership also with SigmaSense to develop new touch sensing solutions, this being part of our offering. The partnership allows us to apply new innovations across industries from the consumer market to the high tech automotive and industrial markets. Finally, we incorporated a new entity VIA Optronics in the Philippines for the design and development of camera solutions. As a reminder, VIA Philippines was incorporated to facilitate the integration of a camera design and development team that was previously part of integrated micro electronics IMIA [ph].
Thus far in the fiscal 2022, we have also had some notable achievements. In February we announced that we received the 2021 award for the Best Technology Innovations Value Strategy for Germany from Capital Finance International. This award acknowledges our commitment to developing innovative and cutting edge solutions for applications that require sunlight readable, robust and optical superior interactive system solutions. In May we announced the expansion of our staffing capabilities in Nürnberg headquarters. VIA has added a new production site adjacent to our headquarters and started ramping up a mass [ph] production in the automotive production line which has already achieved record shipments of over 31,000 units as of May 31, 2022. This goes to only demonstrate our flexibility and diligence but also our innovative capacity as we set our sights on our potential growth ahead.
Finally, this past month we announced plans for a new production site in the Philippines. We expect that site will increase operational efficiencies and help increase margins while also mitigating the impact of ongoing geopolitical pressures, cost increases, and restrictions in China. Also we have not been able to implement all the desired measures to negate the increased supply chain costs during the first quarter. We have agreements in place with customers starting in July which will allow us to adjust prices and stabilize margins in the second half of the year. Despite this we are proud of our second half of the year. Despite this we are proud of how our team has performed amidst among ongoing semiconductor shortages, shipping challenges, and continued COVID-19 lockdowns in China. Despite these headwinds, demand for our display systems and solutions remains robust. Forecasted demand expressed on a compounded annual growth rate or CHER [ph] basis from 2020 to 2025. Automotive, consumer, and industrial are 16.4%, 5.9%, and 16.2% respectively.
More than ever work from home drove higher usage of PC’s, laptops, and tablets. In addition, we consistently saw a greater need for connectivity in costs, more autonomous systems, and shapeability over the past year. Our customers are increasingly aware and sensitive to the technical and optical challenges that come with the new user interfaces combined out of displays and touchscreens and tell us of light shock and extreme temperatures. Our solutions stand up against the challenges of the day across multiple end pockets in which superior functionality and durability is a critical differentiating factor. Before I hand the call to Markus, I’d like to provide an update on the supply chain specifically the global component shortage and its impact on VIA. While we have continued to successfully navigate these challenges compared to the broader market, there have been cost increases affecting our business as a result of the component shortage and shutdowns in China, the Russia-Ukraine conflict, and material price increase due to freight rates. We continue to work with our customers on a case by case basis to mitigate the impact on our business.
In summary we are pleased by the progress that we have made and the results we have achieved in the first quarter of 2022. And this should support continued momentum and growth in the fiscal year 2022 and beyond. However, during this year we will focus on reinstalling and growing our margins, this is the first priority. With that said I’d like — now like to turn over the call to Markus for a short overview of the full year 2021 financials and a detailed review of our first quarter 2022 performance. Markus.
Dr. Markus Peters
Thanks Jürgen and hello to everyone. I will start by reviewing our financial and operating performance for the full year of 2021, then I will outline our first quarter 2022 results, and our outlook for the second quarter and full year 2022. For the full year 2021 we drove very strong topline results as total revenue increased by 18.5% to €180.8 million compared to €152.6 million in 2020. Revenue from Display Solutions segment of €154.7 increased by 21.7% compared to 2020 driven by strong demand from EV manufacturers that generated VIA both larger and a high number of displays than other automotive manufacturers. Revenues from the Sensor Technologies segment of € 26.1 million increased by 2.4% compared to 2020 mainly due to higher sales to certain automotive and industrial customers. Total gross margin was 11.3% in 2021 compared to 15.3% in 2020 reflecting among other some of the supply chain challenges that Jürgen just mentioned.
Moving to the first quarter of this year, total revenue of €52.7 million in the first quarter 2022 increased 27.6% from 41.3 million in the first quarter of 2021 driven by growth in both the Display Solutions and Sensor Technologies segment. Display Solutions revenue of €46.8 million in the first quarter increased by 31.5% from 35.6 million in the first quarter of 2021 driven primarily by growth in automotive revenue and industrial sales. Sensor Technologies revenue of €5.9 million in the first quarter increased by 3.5% from €5.7 million in the first quarter of 2021. Revenue from the automotive end markets grew 74% In the first quarter 2022 and accounted for 39% of Display Solutions revenue.
Revenue related to the industrial and specialized applications end market increased 24% in the first quarter 2022 and accounted also for 39% of Display Solutions revenue, compared to 41% of revenue in the first quarter of 2021. Revenue related to the consumer end market accounted for 22% of Display Solutions revenue in the first quarter of 2022 compared to 30% of revenue in the first quarter of 2021. Gross profit margin decreased to 7.4% in the first quarter, from 11.4% in the first quarter of 2021.
As we have mentioned earlier, we are working diligently with our customers to mitigate the inflationary impacts to our business. Display Solutions gross profit margin of 5.8% decreased in the first quarter of 2022 from 9.8% at the first quarter of 2021 due to sales mix and the increase in the price of certain raw materials, logistic costs, overhead, and labor cost as well as lower margins on sales orders. Sensor Technologies gross profit margin of 20.3% in the first quarter 2022 decreased slightly from 21.1% in the first quarter of 2021 primarily driven by product mix.
Research and Development expenses increased in the first quarter 2022 to €1.5 million from €1 million in the first quarter of 2021 due to the addition of R&D capabilities, which are to a large extent related to the acquisition of Germaneers. Selling expenses increased to 1.3 million in the first quarter 2022 from 1.2 million in the first quarter of 2021 due to higher sales volumes. General and administrative expenses of €5.4 million increased in the first quarter 2021 from €4.7 million in the first quarter 2021 due to among other increased headcount to support the company’s growth trends and consulting expenses. Operating loss was €3.1 million in the first quarter 2022 compared to operating income of €0.7 million in the first quarter 2021.
Net loss was €3.7 million or 0.83 per basic and diluted share in the first quarter 2022 compared to net income of over 0.2 million or 0.04 per basic and diluted share in the first quarter of 2021. EBITDA loss was €1 million in the first quarter 2022 compared to EBITDA of 2.5 million in the first quarter of 2021. Display Solutions EBITDA loss was 0.3 million in the first quarter 2022 compared to EBITDA of 0.5 million in the first quarter of 2021. Sensor Technologies EBITDA was 0.2 million in the first quarter 2022 compared to 1.1 million in the first quarter of 2021. Other segments EBITDA loss was 1.9 million compared to 0.9 million in the first quarter of 2021. We finished the quarter with cash and cash equivalents of €47.1 million, which support our strong runway — which supports the strong runway for us to achieve our strategic objectives.
Looking ahead to 2022 I would like to share our outlook. For the second quarter, we expect total revenue of €40 million to €45 million. This forecast incorporates the impact of COVID-19 related shutdowns in Shanghai and Suzhou, which are expected to cause delays and logistic issues also during the second quarter. For the full year 2022 we expect revenue growth of approximately 5% to 10% compared to 2021. This forecast is based on intentional portfolio adjustments, the slowdown in the consumer market, component shortages especially in the camera business, and uncertainty in the automotive industry. Our outlook also reflects continued uncertainty related to the ongoing impact of COVID-19. Overall, we remain focused on the many growth prospects ahead of us, particularly in the auto and industrial markets, which we will prioritize due to the potentially higher margin and strong growth outlook. With that financial overview, I would like now to turn the call back to Jürgen for a few closing comments. Jürgen.
Jürgen Eichner
Yeah, thank you, Markus. So as a summary, in conclusion, we are proud of VIA’s recent accomplishments and are excited about the prospects for the remainder of the year and beyond. We are working hard to mitigate the impacts of supply chain pressures and we are adjusting our sales prices upward where possible to offset inflation and transportation costs, which will help us regain our historical margin profile and achieve our long-term margin targets. We also believe that we have at the moment reached probably the highest level of costs that we see in our supply chain and will probably improve from there in general.
We are capitalizing on opportunities in the automotive industry through strategic partnerships with Corning and SigmaSense to enhance our cold form and Sensor Technologies and we are in a position to capture additional opportunities in the industrial market. Our backlog remains healthy with new projects continually entering in the pipeline, and we continue to focus on higher value projects, which will support margins. We have a strong balance sheet and a clean financial profile. We believe we are well positioned to drive strong growth and shareholder value over the next several years and we are looking forward to sharing the journey with all of you. Thank you for your continued support. That concludes our prepared remarks. And I now turn the call over to the operator for questions and answers.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. Our first question comes from Andrew Buscaglia of Berenberg. Andrew, your line is now open.
Andrew Buscaglia
Hey guys, good morning.
Jürgen Eichner
Hello, Andrew.
Andrew Buscaglia
So I’d like to start out with — so you’re entering 2022 with seemingly some good momentum on your top line. Can you talk about — so your guidance implies quite a slowdown as the year progresses, it’s not surprising given the broader market, but what are the puts and takes of how you get to that 5% to 10%, are you being conservative, or is this more concerns around these component shortages and being able to get products to customers as being the main issue?
Jürgen Eichner
Well, maybe Markus if you start and add something.
Dr. Markus Peters
It’s a mixture of effects. We saw on the one hand side in the camera business, we see an issue with component shortages indeed. That’s the main limited function over. Secondly, we expect intention — portfolio adjustments because with a focus on margin for one or the other customer maybe he will shop for other choices. But then margin is priority, we cannot entertain all sales orders that we do not really enjoy on the balance sheet. These are the major points probably I think. And of course we have the overall uncertainty in the automotive market while we focus on the vehicles. I don’t think we have that strongly hit.
Andrew Buscaglia
And Jürgen.
Jürgen Eichner
Yeah, maybe just one comment from my side. As I indicated before, I think at the moment looking at today, we probably reached the highest level of potential cost in the supply chain that we will go better from there, and this was also why we had to — why the discussions with customers took so long because you don’t know at the end of the day you will be — you will need to settle. The shortages are not over, we are as Markus said impacted in the camera business especially. But that said from the day looking into the future it looks much better. We had a few unexpected events really during the Q1 and into Q2, but it’s so far I think we are okay. So it’s a summary of things that we have to consider. But right now we actually have settled with some of the customers already. we will impose the changes July 1st and then we’ll go from there.
Andrew Buscaglia
And can you provide with an automotive — an update with your — one of your largest U.S. EV makers, your customer, and in terms of that, like wouldn’t that — would that not provide you some strong visibility into the back half of the year that would imply maybe some conservatives on that guide?
Jürgen Eichner
Yeah, so for this one, it’s actually — so this month, we will have all equipment installed. So in July will run full capacity, actually we run higher than full capacity because the demand increased. So from July onwards that facility will be working as expected. We had — and also that was part of the reason why you see the result as it is, some delays in that area because the customer couldn’t actually get auto parts for their car so we had some slowdowns here. We actually have built but the units have been in our facility waiting for being picked up. But from July onwards, it’s all up to the level that we expected, we might have to work on some yield issues with the new equipment, because at the end of the day, that needs some tuning over the next weeks, but from now on that should operate as we have planned. And if everything works out, as we have agreed with the customer, this should be stable for the next four or five years.
Dr. Markus Peters
And we see already today is that from our automotive turnover 26% in Q1 was with EV makers, not only this one, but the majority of the turnover. This is one company in total [indiscernible] we had 26% turnover of automotive business and we won more assignment last week from an EV maker in China.
Jürgen Eichner
This this will be coming out as a separate release. So we’ll hear about that soon.
Andrew Buscaglia
Okay, okay. And if I heard you correctly, you guys are implying, the worst — or kind of reaching peak in terms of all these costs and shortages, and issues you’re seeing, would that imply you guys can hit a breakeven number before we exit 2022 and EBITDA?
Jürgen Eichner
Actually, this is what we are trying to have, I cannot promise. I promised I think also that will be shortly showing you the margin targets that we have. So we are currently — the focus that we have right now is basically getting back to the regular to normal margin level and it looks like — and that we get — basically get to our target margins as we planned overtime. So there were certain measures cost up for some products to overcome the cost. On the other hand, we are bundling — so a lot of things we couldn’t really do last year because of all the things happening. We are bundling right down the supply chain, we are basically working with our suppliers. So we are driving costs down on the supply side, which seems to be surprisingly also successful. So we will have to cost up and cost down on the supply side and we will make some rearrangements in the company focusing several areas, which are right now basically at every production location in China, here in Germany, and in the future in Laguna and centralize those. So there should also be an additional cost saving exercise. So, this year is really a year where we consolidate everything we have done in the last year, cut down costs, and after the consolidation we will basically follow the plan that we have. What I can say here that we will have also in beginning of August, I think I mentioned that before, we will have our new CMO on board and I will also communicate the changes that we will do with that a little bit later when he is on board and maybe have him also in the call because that — this will be a very important part of the organization.
Andrew Buscaglia
Okay, got it. Thank you.
Operator
Thank you, Andrew. [Operator Instructions]. Our next question comes from Anthony Stoss of Craig-Hallum. Anthony, your line is now open.
Anthony Stoss
Thank you. Good morning, everybody. Jürgen, I wanted to focus still on gross margins. You talked about July price increases, can you outline what percentage of your revenues will see increases or what percentage of your products will see an increase in price, and what other steps can you take to improve gross margins? Secondly, you mentioned that you do expect gross margins to improve quite a bit in the second half of this year, can you give us an expected range? And then I had several follow ups after that.
Jürgen Eichner
Yeah, this is what I — so we will actually get another call about this a little bit later. I was hoping that we are ready to show you this today already. I can tell you that more than half of our revenue and projects will see quite a price increase. Some of them a drastic price increase and that should alone cover some of the margin loss that you have seen. And unfortunately, I cannot yet maybe in one or two, maybe in July, I can give you more detailed numbers and that I was hoping to provide that today already. But the changes are still ongoing and the final settlements with the customers are hopefully ended during the month of July. And on top of that we have the savings in the supply chain site. So — I like to be conservative and don’t set out and give numbers in first, let’s say in a way that I see that the moment very positive. So give me a bit more give us a bit more time to provide the guidance there.
Anthony Stoss
Okay, and then on the June quarter revenue guide down quite a bit sequentially. Maybe take us through what divisions are down the most, is your Display division still holding up? And then really kind of the same question for your full 2022 guide of 5% to 10% growth, what kind of growth rate are you assuming from the display side of the business and are you expecting any parts your business actually be down year-over-year?
Jürgen Eichner
Yeah, so the problem in Q2 was basically it was all coming out of the lockdowns that we have seen in China. As you might know, the Shanghai airport was blocked and at the end of the day, every airport in China, the incoming goods have been blocked and the outgoing goods have been blocked. So everything has been delayed and that caused the biggest impact and Markus please correct me if I am wrong.
Dr. Markus Peters
It is absolutely right.
Jürgen Eichner
And a little bit contributed was some delays that we had in the production as I said, the West Coast company, they had also supply chain issues. But that was not major, the major thing was really China.
Dr. Markus Peters
And there is one customer for the Nürnberg facility, who is not taking the volumes he’s supposed to take.
Jürgen Eichner
Oh, yes, that’s another, that’s true. That’s another automotive customer where the volumes ramp down. And we are currently figuring out why that is the case, because it’s not really transparent, to be honest. So hopefully we can provide more information there. But that was also part of it. Yes, it’s true. I forgot that.
Anthony Stoss
Okay, then just the second part of my question regarding full 2022 growth rates. Honing in on the Display side of your business, that was always the biggest piece of the story of why you became public was the display side. If overall ramps are going to be a 5% to 10%, what do you think display will be up?
Jürgen Eichner
I think this will be mainly related to display, there will be also camera business, but the display touch area is still the one with the biggest growth rate. There will also be — actually we expected more camera growth this year, but camera has seen the biggest supply chain problem at the moment. So the depth that display segment — displays touch will be the biggest one for growth in any case.
Dr. Markus Peters
Yes.
Anthony Stoss
Okay. And then my last question, you commented about the EV maker in China, the press release forthcoming, can you expand a little bit more on that, the size of the opportunity, is it going to amount to any kind of revenues for this calendar year and just timing of that?
Jürgen Eichner
It will not be for this calendar year. It will be I think, starting next year, the size is not as big as the West Coast version, but it’s a luxury EV car in China.
Anthony Stoss
Okay, alright. Thanks, guys. Appreciate it.
Jürgen Eichner
Yeah, thank you.
Operator
Thank you, Anthony. [Operator Instructions]. At this time, we currently have no further questions. So I’ll hand back over to Jürgen Eichner for any closing remarks.
Jürgen Eichner
Yeah, well from my side what I can say is thank you for joining the call today. For us, we are excited about the future of the year and truly believe that we are on our way to continue the long-term growth. I hope that we basically overcome all the supply chain changes this year — challenges this year, at least at the moment. I have a pretty good feeling about that. Hopefully nothing else comes up which cannot be foreseen. In any case thank you for joining and being with us and have a great day.
Operator
Thank you for joining today’s call. You may now disconnect your lines.
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