Melexis (Euronext Brussels: MELE), a global microelectronics engineering company, has reported a 4% year-over-year increase in sales for the second quarter of 2024, with revenues reaching €245.7 million. The growth was mainly attributed to the automotive sector, particularly in applications beyond the powertrain.
The company expects to maintain this positive trajectory, projecting third-quarter sales between €247 million and €252 million and targeting a full-year revenue of approximately €1 billion. A reduction in capital expenditures to around €50 million for the year was also announced by the company's CFO.
Key Takeaways
- Q2 sales rose to €245.7 million, a 4% increase from the previous year.
- Growth was driven by automotive applications, including ambient lighting and advanced climate control.
- Melexis introduced new products such as a magnetic position sensor and expanded its LIN RGB family.
- Secured five major design wins in Q2, relevant for EVs, water pumps, and combustion engines.
- Projected Q3 sales range between €247 million to €252 million, with a full-year goal of around €1 billion.
- CapEx for the full year is expected to be reduced to approximately €50 million.
Company Outlook
- Melexis anticipates a strong Q3, especially in the digital health sector.
- The company is diversifying with investments in non-automotive markets like robotics, two-wheelers, and digital health applications.
Bearish Highlights
- Difficulty in quantifying share gains in the short term was acknowledged.
Bullish Highlights
- A robust design win portfolio across EV and non-EV applications, as well as comfort and safety features, was reported.
- Melexis has a good geographical spread, including a presence in China.
Misses
- There were no specific misses discussed in the earnings call summary provided.
Q&A Highlights
- The company is experiencing a trend of comfort features being added to smaller vehicles.
- Pricing discussions for the next year are expected to be regular, with long-term agreements (LTAs) covering 40-50% of customers.
- Inventory is being strategically used to level production and prepare for future demand.
- No impact on the agreement with Sensata (NYSE:ST) has been reported; business continues as per the existing long-term agreement.
Melexis continues to innovate and expand its product offerings, with the introduction of a new magnetic position sensor and an expansion of its LIN RGB family. This innovation is matched by a healthy design win portfolio, which includes significant applications in the growing electric vehicle market, as well as in water pumps and combustion engines.
The company's strategic investments in emerging non-automotive markets, such as robotics and digital health, indicate a diversification of its business model and a potential for new revenue streams.
Furthermore, Melexis's financial strategy includes a prudent approach to capital expenditures, with a planned reduction to around €50 million for the full year, suggesting a focus on efficiency and cost management. The company's inventory strategy is also aimed at ensuring readiness for anticipated strong demand.
The next earnings call is scheduled for October 30th, where Melexis will likely provide further updates on its performance and strategic initiatives. Investors and stakeholders will be watching closely as the company aims to hit the €1 billion mark in annual sales.
Full transcript - None (MLXSF) Q2 2024:
Operator: Hello, and welcome to the Melexis Q2 2024 Results Call. My name is Saska, and I will be your coordinator for today’s event. Today’s call is being recorded and for the duration your lines will be on listen-only. However, you will have the opportunity to ask questions at the end. [Operator Instructions] I will now hand you over to Marc Biron, CEO, to begin today’s conference. Please go ahead.
Marc Biron: Thank you for the introduction. Dear audience, thank you for joining the Melexis second quarter 2024 earnings call. We will review our performance over the past quarter and over the first half of this year. In Q2, our sales reached €245.7 million, which is close to the higher end of our guidance. It represents a 4% increase year-over-year compared to the market [indiscernible]. Our automotive growth was mainly driven by applications outside the powertrain. We experienced new premium application that rapidly rippled down into smaller vehicles. For example, comfort features like ambient lighting or advanced climate control, in which we are a successful player, are becoming more and more widespread in the different car segments. We are also hearing from our customers about a renewed focus to develop the next platform of combustion and hybrid engine cars. Melexis is well prepared for this shift since our product portfolio covers all type of powertrain. The diversity in our portfolio makes us resilient against recent fluctuation in global car demand. In the second quarter of 2024, Melexis has introduced several innovations. We launched a new magnetic position sensor for applications requiring high functional safety level. We have expanded our LIN RGB family, and we have provided a court-free fund driver mainly used in data server. These successes highlight our growth ambition in e-steering technology, ambient lighting solutions and market beyond the automotive sector. The growth of our pipe of opportunities confirm the effectiveness of our product strategy. It is some insight of our five major design wins in Q2. One design win is a driver to actuate valves in the thermal management system of an EV in China. Another design win is also a driver, but it is used in water pump in Europe. We have booked new business with current sensor for inverter application in the U.S. and also with magnetic sensor to sense the position in the combustion engine in Korea. We have also won additional ambient lighting application in Europe. Those five examples show that we are succeeding globally, whether it is in EV or in combustion engine, in powertrain and also in non-powertrain applications. Now I will hand it over to our CFO, Karen van Griensven, who will share some financial insights.
Karen van Griensven: Thank you, Marc. So hello, everybody. I will go a bit deeper into the financial results for the second quarter. So Marc already mentioned, we had €245.7 million sales in the second quarter, which is 4% more versus the same quarter a year ago and 2% more than the previous quarter. And the euro-U.S. dollar had no effect, neither versus a year ago or versus the previous quarter. The growth result was €108.8 million or 44.3% of sales, which is a decrease of 2% compared to the same quarter of last year and an increase of 2% compared to the previous quarter. R&D expenses were 10.8% of sales. G&A was at 5.3% of sales, and selling was at 2% of sales. The operating result was €64.4 million or 26.2% of sales, a decrease of 5% compared to the same quarter of last year and an increase of 1% compared to the previous quarter. The net result was €49.1 million or €1.21 per share, a decrease of 5% compared to the €51.9 million or €1.28 per share in the second quarter of 2023 and a decrease of 7% compared to the previous quarter. Our Board of Directors also decided on an interim dividend of €1.3, which will be payable after 17th of October. And related to our outlook, Melexis expects sales in the third quarter of 2024 to be in the range of €247 million to €252 million. And for the full year, Melexis expects sales to be around €1 billion with a gross profit margin above 44% and an operating margin above 25%, all taking into account a euro-U.S. dollar exchange rate of 1.08 for the remainder of the year. For the full year 2024, Melexis expects CapEx to be around €50 million, which at €60 million. So previously, we mentioned here €70 million, so a reduction of €10 million. So operator, I would now like to open the Q&A session. So please go ahead.
Operator: Thank you. [Operator Instructions] And first, we have Francois Bouvignies from UBS. Please go ahead.
Francois Bouvignies: Thank you very much. So my question would be on this – on your full year guidance of €1 billion. So if we look at what it is implying for Q4, it’s implying revenues up around 5% quarter-on-quarter in Q4, up 7% year-over-year in Q4 at constant currency. And it’s existing there for an acceleration and a fairly strong growth, especially when you compare to peers. So my question is really like what is driving this growth here? Can you share anything that you see, because it seems to be at odds versus the peers?
Marc Biron: Yes. Our full year guidance is indeed our best estimate today based on the order book, the dynamic of the order that we see, also the new product launch that we will have towards the end of the year. Yes, I acknowledge that versus the peers, it’s the highest growth. But on the other hand, yes, during the first half of the year, we have also been a bit better than the peers.
Francois Bouvignies: Okay. And maybe a quick follow-up if I may. I mean, it’s – if you look at your full year guide implying this 4%, I mean, you don’t have a lot of peers that have seen growth for auto this year. I mean, even some with strong content stories on reported NXP (NASDAQ:NXPI) report TI [ph], I mean, they are all down for this year for auto, some in the high single to double-digit percentage. So this plus 4%, it would be remarkable. I mean, it is already remarkable, what you are doing in H1. Can you help us understand the difference? I mean, or maybe how are you sure it’s not really stocking, like inventory buildup? Because it seems like a very big outperformance. And I really struggle to understand why Melexis would have such bigger market share gain in content wise versus all the players that I mentioned.
Marc Biron: Yes, it’s indeed remarkable and we can be proud of it. To answer your question, we have a portfolio, which is quite insensitive to the type of car, which is produced or which is ordered. As I mentioned in the past, we have the similar number of IC in EV powertrain or in a ICE (NYSE:ICE) powertrain. Then for Melexis, we are quite insensitive to the choice of car. And we have also – we see also increase of business for what we call comfort and safety, which is outside the powertrain. And we see that this segment is increasing, yes, thanks to the premiumization of the car, I would say.
Francois Bouvignies: Got it. I will go back to the queue then. Thank you.
Operator: Thank you. And up next, we have Sandeep Deshpande from JPMorgan (NYSE:JPM). Please go ahead.
Sandeep Deshpande: Yes, hi. Just actually following up on that. Maybe can you comment on how you’ve seen the order trajectory through Q1 and Q2 and whether the orders have continued to improve through the first half of the year [indiscernible]? And then secondly, what do you have in terms of understanding of inventory held by your customers to buy our end customers itself, whether there is any risk that your customers themselves may be holding inventory of products at this point? Thanks.
Marc Biron: Yes, for your first question, the 2025, I think it’s too early to discuss. We are now focused on 2024, and we will not discuss about 2025. And in terms of inventory at our customer, I think we can confirm that the peak is behind us. Now to state when the strong pickup will happen, I think it’s difficult to say.
Sandeep Deshpande: Yes, my first question was not regarding 2025. My question was on how your order intake in the first half of 2024 has gone. Has it been linear through the first half? That was the question.
Marc Biron: Yes, I think it has been linear. We see that versus last year, the orders are coming later. It’s clear that during the previous years that the customer were afraid to not receive their part and they were ordering very early in the process. And now I would say, the dynamic is back to what we knew before the chip crisis and before 2020. The pattern are quite similar to what we knew from the past.
Sandeep Deshpande: Thank you.
Operator: Thank you. And up next, we have Ruben Devos from Kepler Cheuvreux. Please go ahead.
Ruben Devos: Yes. I’ll keep it at one question. Just if you could update us on the achieved design wins year-to-date, so both in automotive as in the adjacent markets and how that compares to the prior two years, which I believe were already quite successful. Yes, if you could quantify this in some way, that would be very helpful. Thank you.
Marc Biron: Yes. That long term our objective is to have 20% beyond automotive, 80% automotive, and this is reflected in the design win. Today, we have roughly, let’s say, 10% beyond automotive, but we have more design win. The design win beyond automotive is more securing, let’s say, the future of 20%. Then we plan to – yes, we have this aspect on the design win for the adjacent. And the overall design win level, yes, we think we are on good track to reach the target at the end of this year. And there is nothing abnormal, let’s say, on the design win. As I mentioned in the introduction, it’s important to see that the design win portfolio, let’s say, is quite healthy. It’s – and for EV and for non-EV and for comfort and safety application and powertrain and non-powertrain, and I would say, for a geographical aspect, it’s also widespread.
Ruben Devos: Okay. Thanks. And for these applications in the premium segment that are penetrating smaller vehicles, what are some of the key drivers? Or what’s the key appetite there leading that trend?
Marc Biron: Yes. For us, we see this trend clearly for the ambient lighting, for the LIN RGB, and also for the drivers that are used in the climate control, as an example, but also in the seat comfort. Those are three examples where we see that those comfort feature are going down in a smaller type of car.
Ruben Devos: All right. Thank you.
Operator: Thank you. [Operator Instructions] We're now moving on to a question from Janardan Menon from Jefferies. Please go ahead.
Janardan Menon: Hi. Good morning. Thanks for taking my question. Just going back to your sales growth, which is looking more resilient than your peers. When I specifically look at some of your direct competitors like Allegro, they are seeing a significant or broadly, their trends are significantly falling this year versus yours, which is flat to slightly up. And we don't know exactly how if Infineon (OTC:IFNNY)'s magnetic sensor sales are doing within their overall automotive portfolio, but it's possible that you would be outgrowing them as well in that specific area. So do you have evidence of – a clear evidence of share gains where you are actually taking design wins at specific customers versus your competition that happen, say, in the last few years and then that is coming into your revenue stream right now? And also, just as – associated with that, is it that you are seeing a lot of growth in any geography like China where some of these ambient lighting features are being deployed in a lot of cars by the Chinese OEMs, et cetera, and you have a stronger position there versus some of your competitors who might be stronger in the U.S. or Europe or something like that? Is there any sort of geographical situation which is causing your strength versus others?
Marc Biron: I would say it's difficult to answer your question or to quantify this in such short-term. As I mentioned, our design win are going well, are going as expected, I would say. The type of opportunities are growing also as expected. Yes, on the geographical aspect, I would say that, yes, we are well – we cover the different geography. Yes, China, perhaps the – your underlying question was that China; I think the design win in China are going also well. And it's a good geography spread, I would say. It's a good type of engine spread, and it's a good overall application spread between powertrain-related and non-powertrain-related. It's difficult to answer your very concrete question.
Janardan Menon: Got it. But are you seeing more strength? Is your China growth higher than your non-China growth today?
Marc Biron: No, it's growing in the same order of magnitude.
Janardan Menon: Understood. Thank you.
Operator: Thank you. And we now move on to our next question now from Veikkopekka, ING.
Marc Biron: Yes, we don't hear the question.
Operator: Okay. Apologies. And we are now moving on to our next question from Veikkopekka Silvasti from ING. Please go ahead.
Veikkopekka Silvasti: Hello. Good morning. Can you hear me?
Karen van Griensven: Yes.
Veikkopekka Silvasti: Good. So it's Veikko Silvasti from ING on behalf of Marc Hesselink. I have one question regarding pricing discussions that normally start over the summer for the next year. So what kind of pricing discussions do you expect this time around? Is there more deflation in the pricing than usual or it's going to be quite similar as in previous years? Thank you.
Marc Biron: As you mentioned, indeed we start the price discussion usually after summer. Then we did not start yet. Yes, what we anticipate is that, yes, it will be the regular price discussion as we knew them from – before the crisis. And we plan to handle them in the same way, I would say, that we are back to normal.
Veikkopekka Silvasti: Okay. Thank you.
Operator: Thank you. And we're now taking a question from Robert Sanders from Deutsche Bank (ETR:DBKGn). Please go ahead.
Robert Sanders: Yes. Hi there. I just wanted to pick up on that last point about the pricing. So some of the auto suppliers seemed to be pointing at a contract and saying, price is not up for negotiation, but volume, we are open to negotiation. But I think that the general expectation in the industry were going to go back to sort of mid-single-digit price declines next year. So at what point do you have to start renegotiating the pricing into next year? Is that going to be a pricing discussion happening starting September, October for next year? Or is there a large part of next year's revenue that is kind of under contract?
Marc Biron: No. We will indeed start the discussion after summer, September, October, as you mentioned. You mean that we have some LTA with our customers? Yes, which is, I think, a good basis for the discussion. Yes, but we have also customer without LTA where we need to handle the discussion as we did it in the past, I would say.
Robert Sanders: Do you have a ratio between customers under LTA and customers not under LTA for next year's sales?
Marc Biron: Yes, it's between 40% and 50% with LTA.
Robert Sanders: Got it. And is it fair to say that the China EV, U.S. EV, major EV customer is the one – are the types of customers that don't sign LTAs, whereas the sort of traditional old-school OEMs are other ones under LTA? Or is that not a fair kind of characterization?
Marc Biron: I would say the customer with LTA are more the traditional customer.
Robert Sanders: Got it. Thanks. And just last question would be related to the inventory days. I don't know if this was addressed earlier. Sorry if this is a repeat question, but what is your target level of inventory, given that the inventory currently is basically six months? It doesn't feel like the historical level, which was typically less than four months. So I'm just interested to understand where you think that's going to settle down. If we go back to normal industry conditions, does that mean that there's a sort of big cash inflow next year from running down inventory? Thanks.
Marc Biron: Yes. Today, let's say, we use our inventory to level out our production because, yes, we want also to be ready when the strong demand will come back. Then we want to be ready to be able – to be ready to be flexible in order to be able to deliver to our customers. And this is the way we see our inventory. Today, as I mentioned at the beginning, the – I would say, the customers are a bit short-term focused, and we want to be ready with the available product to deliver when the need is there, and some more on anticipation for you.
Robert Sanders: Got it. Thanks so much.
Operator: Thank you. [Operator Instructions] And we're moving on to a question from [indiscernible]. Please go ahead. Your line is now open.
Unidentified Analyst: Hi. Good morning. My question is on CapEx. I was wondering if you could elaborate a bit on the adjustment of the CapEx guidance? Thank you.
Karen van Griensven: Yes, we indeed reduced it a little bit. It is more a timing effect of some investments that will be moved into early next year.
Unidentified Analyst: Okay.
Operator: Thank you. And our next question now comes from Trion Reid from Berenberg. Please go ahead.
Trion Reid: Hi, there, yes. Thank you. I just wanted to follow up on that CapEx question regarding what does that imply for next year. Does it mean that actually CapEx will be more like a flat number next year? I think before, you expected that to be down. And then this is the main question I wanted to ask is just on Sensata, which I think still a big customer of yours. They recently guided to a sequential revenue decline in Q3 and mentioned the exit from some underperforming products. I just wondered if that had any impact on you, maybe not yet, but potentially in the future? Thank you.
Karen van Griensven: Yes. On the CapEx for next year, it's really too early because it depends a lot on the product mix. It's too early to comment on what to expect in CapEx for next year. And yes, on the other...
Marc Biron: Yes. On the Sensata, yes, there is no – we did not receive any information from Sensata about any impact. Yes, we are still working according to the LTA that we have.
Trion Reid: Perfect. Okay. Thank you.
Operator: Thank you. And we take a follow-up question from Janardan Menon from Jefferies. Please go ahead.
Janardan Menon: Hi. Thanks. Just want to follow up. I just want to ask about the non-automotive side. The non-automotive percentage is staying roughly flattish. Are you seeing any signs of improvement in that market after the weakness last year? And would you expect into the second half of the year the non-automotive to outperform automotive? And also perhaps, you could give us an update on the progress in digital health. How are you seeing that in terms of approvals and things that are coming through?
Marc Biron: Yes. In terms of the non-automotive, yes, we are investing in those markets. On emerging markets, you know that we have selected some emerging markets beyond automotive. And we are investing in our development bandwidth. We focus mainly on robotic, on two-wheelers and also on wearable. On robotic, we have this sense of touch, what we call the Tactaxis, which is a sense of touch sensor. But on top of that, we are working also on some specific position sensor that will be used in the joint of the robot. We cannot use a position sensor from automotive in the joint of the robot. We need more resolution as we develop a specific product. We developed also a torque sensor that will be used in this robot. And all the goal is to improve the accuracy of the movement of the robot. For the two-wheelers, we are also quite successful with current sensors. We are winning some business in the two-wheelers for the current sensors. For the health sector that you mentioned for the – we have also more and more traction on application outside the watch. You know that we have an important design win or an important production for a watch. But outside the watch, we see more and more traction for the digital health and for the sense of touch sensor.
Janardan Menon: And just into the second half of the year, are you seeing any improvement in the non-automotive side in terms of just end demand in the short-term from customers?
Marc Biron: Traditionally, let's say, Q2 and Q3 are quite strong for the digital health. It's linked to the dynamic or not the dynamic, to the timing of the market with the release of the wearable. Then, yes, Q3 will be also probably strong for the digital health.
Janardan Menon: Understood. Thanks.
Operator: Thank you. And as there are currently no further questions in the queue, I'd like to hand the call back over to you, Mr. Biron, for any additional or closing remarks.
Marc Biron: Thank you. Yes, thank you for all the questions. I hope we have answered all of them as clear as possible. And I'm looking forward to see you or to discuss with you at the end of October, I think, the 30th of October, the next call for the future release. And for the ones that have not been on holiday yet, I hope you will be able to relax and enjoy the month of August. Thank you.
Operator: Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.
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