Good day, welcome to the Melexis full year 2022 results conference call. This meeting is being recorded. At this time, I'd like to hand the call over to Mr. Marc Biron, CEO. Please go ahead, sir. Thank you. Hello, everyone. Welcome to the earnings call related to our Q4 and full year results. Today, we have two speakers, Karen Van Griensven, our CFO, and myself. Let's cover some top line and financial background first, after which Karen and myself will be happy to answer any question you may have. Our revenue in 2022 has increased by 30% compared to 2021. This increase was supported by the dollar effect, the price inflation, the improved product mix, the car sales increase, and the content growth. Our growth in 22 was heavily constrained by the supply, it was also clearly driven by the car electrification as well as by a significant increase in body chassis and safety application. Those trends are also visible in the outperforming product line. First of all, the revenue of the current sensor product line has doubled in 22, thanks to high demand in inverter, onboard charging DC/DC converter applications. The sales for the embedded drivers, which are supporting thermal management in electric vehicle, has also increased by almost 50% in 22. The increase of the sensor content in safety application has contributed to the highest growth in absolute value of our Magnetic Sensors. We have launched 16 new products in 22, and those launch also confirm those trends. Just as an example, we have launched embedded driver, which are used to position the actuator of the thermal valve, and therefore those embedded driver are key element to increase the range of electric vehicle. We have also launched a current sensor, which is used for the battery monitoring of the electric vehicle, and we have launched multiple Magnetic Position Sensors that are used in steer-by-wire system, but also in the thermal valve of the electric vehicle. For 2023, we anticipate the continuation of supply chain constraints for the innovative application that are used in electric car and also high-end car, while for the other application, demand and supply are moving to a healthier balance. I'm now giving the floor to Karen for more financial results. Thank you, Marc. Hello, everybody. A bit on the financials. The sales was already mentioned, a 30% increase. We reached EUR 836 million. There was an impact of 5%, a positive impact because of the strength of the US dollar. The growth result was EUR 374.7 million or 44.8% of sales, which is an increase of 37% compared to 2021. R&D expenses were 10.8% of sales. G&A was at 4.9% of sales, and selling was at 2% of sales. The operating margin or results was EUR 226.5 million or 27.1% of sales, an increase of 5.3... 53% compared to EUR 148.4 million in 2021. The net result was EUR 197.2 million or EUR 4.88 per share, an increase of 50% compared to EUR 131.1 million or EUR 3.25 per share in 2021. The board of directors also approved a proposal to the annual shareholders' meeting to pay out over the result of 2022 a total dividend of EUR 3.50 gross per share. This amount contains an interim dividend of EUR 1.30 per share, which was paid in October 2022, and the final dividend of EUR 2.20 per share, which will be payable after approval of the annual shareholders' meeting. We'll go to the outlook. Melexis expects sales in the first quarter of 2023 to be in the range of EUR 225 million-EUR 230 million. For the full year 2023, Melexis expects a sales increase between 11%-16% with a growth profit margin around 45% and an operating margin around 26% at the midpoint of the sales guidance, all taking into account a EUR USD exchange rate of 1.08. For the full year 2023, Melexis expects CapEx to be around EUR 70 million. I would like to now open the Q&A session. Operator, please go ahead. Thank you. Thanks. If you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please make sure your mute function on your phone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. Our first question comes from François-Xavier Bouvignies from UBS. Please go ahead. Hi, good morning. I have a couple of questions if I may. The first one is, maybe coming back to your outlook. I mean, if we look at your Q1 guidance, it implies 24% growth year-over-year, and I mean your full year is on 11%-16%, sorry, year-over-year. I was wondering, it would imply, you know, significant slowdown or even, no growth in the second half of the year. I mean, are you being conservative here or in light of the macro environment, or is it something that you see, you know, the slowdown and, I know any drivers, you know, you could provide for this implied slowdown would be helpful. Yes. Thank you for the question. I think the we are more cautious by the supply aspect, because I mean all the, or the vast majority of the growth is coming from innovative products for innovative SiC application, electrification, ADAS, and also pre-optimization. those new products needs to ramp up, and it's why we are a bit cautious on the supply aspect for the full year. How much supply do you have in there in volume term, I mean, do you get from your foundry partners? Can you repeat the question? Supply incremental. What is your supply incremental that you get from your, from your partners? How much you can increase your capacity in 2023 versus 2022? The 11% to 16% increase that we have guided is mainly constrained by the supply. It's mainly volume here. Yeah. It's difficult because any hiccup in the supply will have immediate effect on the Melexis. It's very difficult therefore to predict already now what the supply will be. Yeah. I repeat, we are ramping up those new applications, those new products. Here we know that the ramp up is always a bit sensitive. It's why we want to be cautious. Yes. You don't see any inventory, you know, impact or demand-driven impact in the second half of the year. It's really only supply that would justify the H2 implied outlook, if you see what I mean. Yeah. We don't see indeed, for those innovative application, we don't see demand reduction. Okay. Thank you. The second question is on current sensors. I mean, you have been talking about that for a while now. Can you help us understand how much is it as% of your revenues, current sensors at the moment? As I mentioned verbally, it has doubled, if we compare 2021 and 2022, and it was indeed a small product line at the beginning. Now the product line is growing. It's, I would say in the average of other product line, but we don't give exact number. It's for sure not a small product line anymore. Is it like mid-single digit%, high single digit% of revenues, low single digit still? Just trying to understand because, you know, it's obviously a very important driver for your growth. Mm-hmm. Mm-hmm. understand how big it is, you know. That way we can have a bit more visibility on this new product line. Again, we don't give exact numbers on this, but, yeah. Overall the electrification products is, it's a substantial part, that's more than Current alone. There we speak of a very important portion already of Melexis. Again, we don't wanna give... I'm talking also the Motor Drivers and other application like x-by-wire type of applications. If you take these into account, you come at least at 30% of our sales. Okay, great. Maybe last one for me if I may. On the OpEx. OpEx has been quite high this quarter. I mean, is it a new run rate or any one-off in this OpEx? Just trying to model for the year. There is the wage inflation that is, or inflation in general, but certainly wage inflation that had the full impact for the 1st time in Q4. There are a few exceptional items as well. It could be that Q1 is again, a bit lower. We wanna do, we plan to do volume hiring for R&D. In that respect, throughout the year, we expect R&D to further go up versus Q4 as a percentage of sales. Right. At the beginning of the year it might still be a bit lower. Okay. Thank you very much. I will go back to the queue. queue. Thank you. Our next question comes from Marc Hesselink from ING. Please go ahead. Yeah. Yes. Thank you. First question. The ICs per car from Melexis stable at 18. Can you maybe explain a little bit what's behind there? Is that the shift in maybe a little bit less premium cars, the shift towards EV. Maybe linked to that, how many ICs does Melexis have in electric vehicle? In fact, last year it was a bit less than 18. It has been rounded up to 18. This year is a bit more than 18. We keep it. That's why we mention 18 plus, because we have almost one IC per car more versus last year. In fact, indeed, our revenue has grown by 30%. Those 30% were due to some dollar effects on price inflation. We have improved a lot the product with the product mix thanks to the allocation. In terms of volume, the car sales volume has increased and our content growth has increased. It's why out of those, out of those 30%, only part of it is really, volume growth or content growth. This is corresponding to a bit less than IC per car. The element of looking forward on electric vehicles, Are you above that 18-plus level, or is it more or less similar? I would say in general, yes, because in the electric vehicle there is the electrification aspect of the vehicle, but also those vehicle come with a much modern platform. The much modern platform also contain much more comfort and safety application with a lot of electronic. I would say in total, the electric vehicle is much more than 18 IC per car. If you remember last year or the year before, we mentioned some IC per car for some modern cars like the Tesla or the EQS, and we were, yeah, 40 plus in such a car. It is because the electrification is coming with a more modern platform. Overall, the car is much more modern, meaning with much more electronics. Okay. The second question I have is on the long-term agreements, of the forecasted revenue growth. How much of that is on those long-term agreements? I think we mentioned last time that the long-term agreement was for half of the volume. That's still the case? It's still the case, yes. We still have some. We have added some long-term agreement recently, it does not change really the needle. I think overall it's 50%. Okay, thank you. Final question. In the growth guidance, just want to be sure. How much of that is the price component? How much is volume? How much is price? I would say it's very low double digit. Okay, clear. Thank you. Thank you. We will now move to our next question from Guy Sips from KBC Securities. Please go ahead. Yes, a few questions from my side. First on non-automotive. Can you give some color on that segment? Yeah, I would say that the situation is similar to the previous quarter. We have 10% of the revenue, which is related to the non-automotives. Yeah, I would say there are two reason why it does not increase. The first reason is linked to the allocation. During the full 2022, we have always given priority to the automotive business, meaning that we have, let's say, derive some wafers from non-automotive to automotive customers. This is one aspect. The second aspect which came throughout the end of the year is indeed, we have also seen some reduction of demand for the non-automotive, which was healthier for us because we have been able to derive even more wafers to the automotive business. All in all, the 10% remains stable throughout the year. Mm-hmm. As automotive is, is stable or still growing in a more difficult climate for other semiconductor segments, do you see new kids on the block or are still the usual suspects in the competitive landscape? I would say the usual suspects. Yes. The design win was very strong in 2022 so far. Yeah. We have. Already in 2021, the design win was very strong. We were wondering, can we beat 2021? When we have beaten 2021 largely in 2022. Indeed, it was a very strong year of design win. Last question is on this trends. Like, you benefit from electrification, ADAS, user experience. Which of these trends do you expect to be more important in the shorter run and which will be more, let's say, 3 to 5 years out? if we look the, let's say, the projection of the growth for the next five years, let's say, clearly the highest growth is coming from the electrification of the cars. IHS, for example, expect that between 2022 and 2027, the CAGR will be 28% for the electric vehicles. This is for sure the highest contributor. and then the premiumization is the second one in term of contribution. With the ADAS, I would say five years ago, the goal was to reach Level 5 in ADAS, now I think everybody is much more modest. Level 5 is not for the near future. We see that more and more car are moving to Level 2 and to Level 3, which is also good for Melexis because to reach Level 2 and Level 3, you need much accurate products. You need also product with more safety. Yeah, sometimes to create the safety, you need also 2 products in parallel. I would say this is the third trend in term of contribution. Okay, thank you. Our next question comes from Robert Sanders from Deutsche Bank. Please go ahead. Yeah. Hi, good morning. I guess my first question would just be around the Malaysia fab issues that X-Fab experienced. Did that affect you in Q4 or Q1? Would your revenue have been significantly higher or was it not that material? I've few follow-ups. In fact, indeed, you are right. Our supply in Q1 is affected by this problem, and this problem happened, I think, in October. Given the supply chain lead time in Q1, we have some supply limitation due to this problem. Does that mean your lead time has got longer? No, it's not a problem of lead time. It's really a problem of lack of supply. No, no, I meant lead time for your products in the market, in the channel. Yes, in a way, yes, because we have received less. I mean, the supply chain was a bit empty at one point in time. It creates some delay in the overall supply chain. Okay. Can you... I'm just coming back to a previous question regarding the contribution of price to the growth in 2023. I just wanna clarify what you meant by... Did you say low double digits? Pricing is up low double digit. Very low double digit. Is that what you meant or something else? Yes. It's indeed around 10%. I know. Okay. If you're guiding for, in the teens, then two-thirds is driven by price. Am I interpreting that the correct way, yeah? Mm-hmm. Okay. more than half. Okay. In terms of LTA enforcement, obviously there's gonna be a challenge going forward when we have this a correction in 2024. X-Fab has been very clear that they will strictly enforce LTAs. How does it feel for you guys, in terms of strictly enforcing, you know, take or pay type terms? Is it a bit more tricky for you guys given that some of your competitors will have better supply than you and will likely start undercutting you? Will you enforce these LTAs strictly in 2024? You mean we enforce toward our customers or toward- Yeah. With your customers, will you insist on pre-agreed pricing under contract? Do you think that given that that's a repeated negotiation, that you may have to give ground on some of these pre-agreed terms? I think the LTA is the new reference, meaning that we have indeed LTA with our supplier, we have LTA with our customer, and this will be the reference in any discussion, I would say, for the next three years. Yeah, the LTA that we have agreed with our customers are fully synchronized with the LTA that we have agreed with our supplier, meaning that we have a good balance in between and we feel comfortable, let's say, on this aspect. Last question, just on current sensors. Who is driving the decision to choose your sensors over another? Is it typically the OEM or is it typically, you know, tier ones like, I don't know, Vitesco or someone like that? What is the typical situation that gets you designed in, either OEM-led or tier one-led? I would say we have a mixed situation because indeed some OEM want to control directly the IC supplier. For some of the OEM, we have a direct contact with them, and they define themselves the current sensor that they need because they want to control the overall electric powertrain. We have other case, which is more the traditional case where indeed it's the tier one who define the current sensor. I would say the modern OEM have a direct contact with Melexis. Got it. There's no role for reference designs from other companies, like larger semiconductor companies like ADI or NXP in terms of... No. It's a separate decision point. Okay. Thank you very much. Mm-hmm. Our next question comes from Sandeep Deshpande from J.P. Morgan. Please go ahead. Yeah, hi. Thanks for letting me on. I'm just trying to understand. I mean, you've had 2 consecutive years of, you know, 25, approximately 30% growth. You're guiding to this year, where two-thirds of the growth is coming from price. How was the pricing in the last 2 years? Can this kind of pricing trajectory be sustained? Yes. It's for sure a good and important question. Yeah, indeed, we said last year the price increase was high, single digit. This year it's a bit similar. Yeah, I think as a matter of fact, those price increase are linked to investment. I mean, the volume, the overall volume needed for the electronic of the cars is increasing. In order to finance those volume increase, we need to increase the price. This is the main reason of the price increase. There is indeed the inflation, as Karen mentioned, but most important is the need for investment in order to be able to cope with the volume required by the automotive industry. Why is this different from the investments you were making in the last 10 years as such, really? I mean, I mean, when one looks at your spending over the last 10 years, clearly at the moment, maybe you're spending, say, EUR 70 million, but you were spending EUR 70 million in some years, even in, say, 2018, you spent EUR 50 million, you know, You know, an average of EUR 50 million before. It's not a big change in the spending. There is the big change versus, let's say, 5 years ago or 10 years ago is that there is no available capacity. All the capacity is used. At the fab. Yeah. All the capacity in the fab is used by the industry. Now we need to. I mean, maybe the question to ask is, as the capacity ramps up, we can see, I mean, in terms of the equipment companies, they're getting very strong orders. As the capacity ramps up, will this pricing change? You know, I mean, normally with cyclicality in the semiconductor industry, I mean, the industry has held capacity very tightly over the last decade, and now it's spending a lot of money on capacity. Normally, it goes the other way, and that has a risk to pricing, or it doesn't have a risk to pricing. Perhaps to finish the answer to the previous question, it's not only our investment. It's really also the investment of the overall supply chain of our suppliers. There is now really a big shortage at the supplier side. This big shortage did not exist five years ago. It's why the investment is key. I mean, we cannot move without those investment, and those investment must be financed. Okay. Thank you. Our next question comes from Ben Sever from BTIG. Please go ahead. Hi. Good morning, and thanks for taking my question. I wanted to linger for a second on the R&D expenses. They came in slightly higher than expected. I was wondering if you could share some insight on where that money is going exactly, what you are cooking up. What products we are working on, or is that your question? Yeah, yeah. What products are you investing in right now? We have over 10 product lines. It's spread over the t-product line, but we do make some... We put attention, relatively speaking, more on the electrification, the big road drivers, like, for instance, current sensors. Proportionally, yeah, there we plan to increase even more than what we do today. It's an ongoing process. It's not something that was that is just in Q4. This will continue over the next quarters, with proportionally more going into the high growth drivers like the one what Marc already mentioned. Yeah. I mean, the current sensor and the driver for the thermal management, because thermal management is really key for the electric car. Thermal management of the cabin. What is new is the thermal management of the engine or the battery. We need to heat up the battery in winter, we need to cool down the battery in summer. This thermal management require specific product. For Melexis, this is a position sensor and the embedded driver. As Karen mentioned, the investment are also related to those thermal management products for the electric car. Okay. Thanks. Maybe, second and last question from my side, is on dividend policy. You are paying out more, than last year. I was just wondering, if, this is like a template for years to come, what your, policy is on the dividend side. Well, we don't have a written policy, but. Well, we have history. The dividend, as the past has shown, we've always paid out a high percentage of the profit to the shareholders. That's what we did now as well. With growth in profits, we also increase the dividend basically. Okay. That's very clear. Thank you. Yes. It's in line with the profit growth, basically. Thank you. As a reminder, to ask a question, please press star one. Our next question comes from Michael Roig of Degroof Petercam. Please go ahead. Yes, good morning. First question I have is on your average selling price. It went up by 16%. About 5% from that is from currency. That leaves 11% for price mix. Did I hear it correctly that your price increases last year were about 8%-9%? Correct. Indeed, there is also an other component that influences the average selling price, and that is the product mix. When there is supply constraint, you try to maximize sales and profit per wafer. That's the effect you see there as well. Supply constraint has made us take decisions to rather favor more to have more sales per wafer, basically. Okay. You also commented that you shifted some wafer allocation to automotive, which has higher ASPs. What are your plans for 2023 with respect to the wafer allocation? The same mix as last year, or will you push even more towards automotive versus the other segments? I would say for the moment, we have a few more or less the same of the mix. Yeah. Yes. Okay, good. The second question I have is, there's currently a price war going on in electric vehicles in the U.S. and China, and that may be good or bad, depends on the reason for the price war. If it's because of slowing demand or because of too many factories not being fully utilized, et cetera. Lower prices are generally bad for profits and may give some pushback on pricing. Can you give us your view on what's happening and what kind of feedback you get from your clients in electric vehicles? Yeah. I would say for the time being, especially for the client with electric vehicle, we discuss much more about allocation and supply than about price. For those kind of products, we still have a supply challenge and not a price challenge. Okay. The reasoning for this price war is this, the feedback you get on that, is that simply to gain market share or to fill idle capacity? Is there anything to say about that? No, I have no clue. I don't have insight. Okay. Yeah. Well, it started only recently, perhaps next quarter there will be more insights. Good. That's it from my side. Thank you. We will now take our next question from Robert Sanders from Deutsche Bank. Sorry, just a quick follow-up. You're saying you're gonna grow 13.5% at the midpoint, and pricing is gonna grow in the low teens. Your units are not really growing at all despite X-Fab's significant capacity expansion. What is going on there that doesn't seem to make sense? Given that you've got supply constraint, I mean, you're now growing units in line with automotive production. Are you constraining? I mean, are you basically having to prioritize strategic products over others? I mean, to put it another way, what is your unconstrained revenue guide in 2023? We don't I mean, yeah, it's difficult to disclose this. Yeah, for the time being, indeed, we have been a bit cautious, especially on the low end of the guidance because of those of those supply aspects. Yeah, for sure, the order of book is much higher than what we have guided. Yeah, we had a mismatch of 20%, 30% in 2022. Yeah, for many of these products, it's still ongoing like that. Sorry, you have a mismatch between demand and supply of 20%-30% and that continues, is that what you're saying? That was clearly in 2022 the case. Mm-hmm. Okay. Unconstrained demand is 20%, 30% above your ability to supply. It's difficult to say because there is more where it was across the full line in 2022. Now, some products there, it's very much constrained, others less. Yeah. I think we have some headwind and we have some tailwind. The tailwind is what we described. The premiumization, the electrification, the ADAS, those are all tailwind. Yeah, the headwinds are also what we know in term of geopolitical aspect, the fact that the world become complex, the fact that the supply is very limited and still a big challenge. It's why we believe that the guidance is a good balance between the headwind and the tailwind. To put it another way, the number of escalation calls you're getting is not less than it was six months ago. It's, if anything, it's going up because you are still massively constrained. I think for the innovative products, for the innovative application, meaning electrification, comfort, and safety, the number of escalation call did not reduce indeed. Yes. As I mentioned verbally, for the other type of application, I think we are moving to a healthier balance between supply and demand. Okay. Thanks a lot. As a reminder, to ask a question, please signal by pressing star 1. We'll pause for just a moment to allow you to signal. If there are no further questions in the queue, I'd like to hand the call back over to Mr. Marc Biron for any additional or closing remarks. Over to you, sir. Thank you. Thank you for the discussion. I think it's always important to get a good challenging question because it help us to stay at the top of the wave. We are going to meet you again in April for the Q1 results. Thank you. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.