Hello, and welcome to the Melexis Q1 2025 results conference call. My name is George. I'll be your coordinator for today's event. Please note that this conference is being recorded, and for the duration of the call, you'll either be in listening-only mode. However, you have the opportunity to ask questions towards the end of the presentation, and this can be done by pressing star one on your telephone keypad. Also, during today's question-and-answer session, please limit yourself to one question to allow most people to ask their questions. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I now call over to your host today, Mr. Marc Biron, CEO, to begin today's conference. Please go ahead, sir. Hello, everyone, and welcome to our first quarter 2025 earnings call. Together with our CFO, Karen Van Griensven, I will discuss how the year has started for Melexis and how we are preparing for the future as an electrified and robotized world remains the growth driver for Melexis. While taking into account the changes in external conditions and adjusting where needed, we always focus on things within our control. In Q1 2025, sales were within our guidance despite a volatile and fast-changing market environment. Sales to customers in Asia-Pacific were 64% of total sales, while, from an end-market perspective, beyond automotive sales were at 12%. The current gross profit margin is clearly below where we want to be, and the actions we are taking are expected to have an impact by the end of this year. You may have read that we did not include a comment in our expectations after the first half of this year. Since we reported full-year results last February, customers in our end market are facing a wider range of scenarios due to tariff announcements. Importantly, on average, customer and distilled inventories look stable at acceptable levels. The current uncertainties seem to delay the order pickup, and we are also seeing orders coming in very late. Those are the reasons why we did not provide a notebook for the second half of 2025. I would add that there are no signs of customers pulling in orders forward to anticipate potential changes to trading terms. Turning back to our results, in the first quarter of this year, our inductive position sensors have performed very well, addressing needs in the powertrain of electrified vehicles and also in the advanced steering and braking systems, which are crucial for assisted driving. Similarly, our latest generation of electric motor drivers has excelled for small motor in valves and for larger motor in pumps, which are two key applications of the thermal management and in-cabin comfort system. Some of those motor drivers have also found success beyond automotive, such as in refrigerators, to improve cooling efficiency. As for our temperature sensors, our solutions continue to be very successful in consumer health-wearable applications. Among the product launches, I would like to highlight our automotive dual LED drivers, enabling the most demanding light animation for interior and exterior lighting. Lastly, I remain personally involved in our strategic activities targeting innovative applications in robotics. It is an area where we aim to capture significant market share in the midterm, and particularly in China. To reach our ambition, we are accelerating the development of several sensors and drivers products, and we start to heavily promote them globally at customers and at fairs. As a takeaway, I reconfirm that wherever electrification or robotization exists, there are growth opportunities for Melexis in the automotive and beyond automotive applications. I also want to highlight more broadly our progress in China. In 2024, sales in Greater China were 28% of Melexis' total, coming from less than 20% just five years ago. This is due to bringing strong innovation, product quality, and local technical support. We are pleased to take the next step in our strategy as announced in Electronica China in April. The objectives are to accelerate innovation, intensify customer collaboration, and reduce lead time in this key market. To do this, we have established partnerships to outsource semiconductor assembly and testing. We will also manufacture in China products developed by Melexis, tailored to the Chinese market, and scheduled to enter production in the first half of 2026. We have moved to a new larger office in Shanghai in March to accommodate our growing commercial and technical support activities. Customer feedback has been very positive as we deliver on commitment made in our China for China strategy. Last but not least, according to Tech Insights more recent report released earlier this month, Melexis ranks number four globally in automotive sensors, with one of the highest sales figures over the past five years. All in all, I'm pleased to see how our team is managing the present and preparing the future success of Melexis. Now, I will hand it over to our CFO, Karen Van Griensven, who will comment on our financial performance. Thank you, Marc. Hello, everybody. As already mentioned, the sales for the first quarter of 2025 were EUR 198.2 million, a decrease of 18% compared to the same quarter of the previous year and stable compared to the previous quarter. The Euro/US Dollar exchange rate evolution had a positive impact of 1% on sales compared to both the same quarter of last year and the previous quarter. The gross result was EUR 75.7 million, or 38.2% of sales, a decrease of 29% compared to the same quarter of last year, and a decrease of 2% compared to the previous quarter. R&D expenses were 14.3% of sales, G&A was at 6.8% of sales, and selling was at 2.4% of sales. The operating result was EUR 29 million, or 14% of sales, a decrease of 55% compared to the same quarter of last year, and an increase of 5% compared to the previous quarter. The net result was EUR 24.6 million, or EUR 0.61 per share, a decrease of 54% compared to EUR 52.9 million, or EUR 1.31 per share in the first quarter of 2024, and an increase of 35% compared to the previous quarter. Now, looking at the outlook, despite a weaker Euro/US Dollar exchange rate of 1.09, previously 1.03, Melexis confirms its outlook for sales to be around EUR 400 million for the first half of 2025. For the same reason, Melexis now expects a gross profit margin around 39%, previously around 40%, and an operating margin around 15%, previously around 16% for the first half of 2025. Melexis continues to expect an upturn in sales later this year. Sorry, Melexis expects CapEx to be around EUR 50 million. I would like to now actually open the Q&A session. Operator, please go ahead. Thank you very much, Marc. Ladies and gentlemen, once again, if you wish to ask a question, please press star one on your telephone keypad, and please limit yourselves to one question each. Our first question is coming from Janardan Menon of Jefferies. Please go ahead. Your line is open. Hi, good morning. Thanks for taking the question. Just a little bit, just to dive a bit more deeper into the second half outlook, where you had talked about a significant increase in the second half versus the first half in your Q4 results. Clearly, you are not confirming that at this point in time. What can you tell us about the second half? I mean, can we at least have some confidence or feeling based on your current order outlook, booking level, that you will see higher revenues in the second half versus the first half? Is that something that can be confirmed, or is there some uncertainty on that as well? Just in the same thing, on your Q2 guidance of around EUR 202 million at the midpoint, can you confirm what exactly is the currency effect? I mean, if the currency had stayed at the lower level than rather than 1.09, then what would have been your revenue for this quarter? Thanks. Yeah, on the first part of the question, yeah, as you have understood and as you know, probably there are a lot of uncertainties in the market in general. We are also receiving the order very, very late. It's exceptional. As an example, last week, we have still received orders for Q2. Q2 will stop in two months, but last week, we are still receiving orders. It means it's really difficult to give an accurate view on what will happen in the second half of the year. You have also read that OEMs are giving, in the press, let's say, some message recently. What I can say is that we believe that the Q4 2024, the Q1 2025 is somewhere at the bottom of the situation, but I think we need to be conscious that all scenarios are probably on the table. Does it answer your question? Yeah, just to follow up, some of the other companies have talked about a rising book to bill, and in most cases, it's gone above one. Would that be something that Melexis has also seen in terms of a rising book to bill? Is the uncertainty that you're talking about more because you're not sure whether the book to bill, the order book, is reliable or not? We discussed during the last conference call about the different indicators that we are following, and book to bill is one of them. I would say that since last time, it is relatively stable. I mean, it does not degrade, but it is stable. Understood. On the Q2 guidance, what would be the currency impact on the revenue? For 5% dollar impact, it's around 2% sales impact. Thank you. Our next question will be coming from François Bouvignies of UBS. Please go ahead. Thank you. I just wanted to come back on Asia revenues. I noticed that Asian revenue was down 10% year over year. It was also down last quarter. I was just wondering, I guess China is a big part of this Asian revenue. Can you maybe tell us the trend that you see in China at this point? Of course, we noticed the strong acceleration of strategy in China. Maybe you can elaborate as to why you are accelerating this China strategy. Is it because you see some market share loss somehow or some risk emerging with locals? That would be my first questions, maybe. Yeah. Asia and China have indeed decreased if you compare with last year, but they have decreased much less than in Europe or in the U.S. I think it's more a positive sign that China performed, let's say, better. China or Asia performed better than the rest of the world. Indeed, we are accelerating our strategy in China, not because we are seeing risk or because we lose market share, but more because we see that there are a lot of business opportunities there. We want to be well positioned in China in order to grasp this business. It is more for a positive reason than for a negative reason. In Q1, there is always the China New Year, so that also explains to some extent the drop versus Q4. It will go up again in Q2. Yeah, as we mentioned during the Q1, the design win and the opportunity pipe is growing well in China. If we speak about beyond automotive and the robotic, we see also a lot of traction in China for those kinds of applications. It's why we want indeed to strengthen our position there. Thank you. We'll now move to Sandeep Deshpande of JP Morgan. Please go ahead. Your line is open. Yeah, hi. Thanks for letting me on. My first question is regarding your currency assumption on the margin. I mean, if you assume, I mean, clearly, you're not giving any guidance for the second half, but given where the currency is today, say, 1.14 or so to the dollar, would it mean that if the revenue remained at the same level, say, EUR 400 million in the second half of the year, that your gross margin will decline further in the second half of the year given the currency has shifted? My second question is regarding your exposure. You talked about your growth outside automotive in robotics, etc. Can you talk about how your design win activity is going? I mean, today, you're approximately 88% automotive exposed. Is your design win activity in terms of signed-up designs lesser in automotive today than the reported revenue? For instance, that your design win activity is, say, 85% versus 88% today for the next two, three years. Thank you. I will first take the US Dollar question. Actually, the effect that we see today of the Euro/US Dollar is mainly not structural. It has to do with revaluation of our inventory. Structurally, the impact of the US Dollar on the margin is quite limited. It actually even has a slightly positive effect on the gross margin. On the EBIT margin, it's quite stable. The effect we see today of the US Dollar is purely on inventory revaluation, is not structural. 2% in Q1 in our gross margin is actually lost due to revaluation reasons. Not structurally. 2% is also linked to yields, and that is also not structural. The yield improvements will happen throughout the year, most likely by year-end. The yields will be back to more historical levels. Does that explain your question? You're implying in that that actually, even if the revenue remained EUR 400 million, then your margin would improve in the second half of the year because it is not. Yes, for two reasons. If the dollar remains quite stable, it will improve because there will not be a revaluation effect, and also the yields we expect to improve. Understood. On the design win question in beyond automotive, yeah, first of all, the design win is really the end of the business creation process. When we start to create the opportunity, let's say there is months, sometimes even two years, to get the design win. Design win is really at the end of the business creation. We do not see yet a tremendous effect on design win for the beyond automotive because it is too late in the process, but we see a very significant effect on the business creation and the opportunity increase. We see that we have more and more opportunity coming from the beyond automotive market. Now the job of the business creation team is to convert all those opportunities in design win. Thank you. Our next question will be coming from Sips of KBC Securities. Please go ahead. Your line is open. Yes, thank you. I want to come back to your next step in your China strategy. You're focused until now in the comments on the non-automotive part, but can you also give us some indications what your view is on the China automotive market and how do you want to position yourself going forward? Thank you. Indeed, when I say there are a lot of opportunities in China, I didn't mind in automotive and in beyond automotive. Yeah, the Chinese market is leading the EV application. It's also leading all the premiumization of the car in terms of comfort and safety. There are a lot of new business opportunities in China also in automotive. In order to address those opportunities, there are different mandatory actions. I would say the first one is to bring the right innovation with the right supply chain. It's coming back to the China for China strategy. It's why the Chinese customers expect that, I would say, for the time being, part of the supply chain is done in China, but in the near future, the full supply chain should be in China. It's why we have in automotive products that are today assembled in China and also tested in China, and we will increase those numbers of products. For the wafer fab, we are in the design process in the wafer fab in China in order to be able to deliver automotive products coming from a China process in the future. I mentioned the objective is that the first product, which will be a current sensor, will go out of a China fab in 2026. Last but not least, the third mandatory aspect is the customer support, the technical support. We clearly see that the Chinese customers expect immediate reaction, immediate answer in case of question. They expect a kind of plug-and-play product that they don't want to lose time to understand how the product is working, how to include the product in the application. It must be, let's say, plug-and-play. If it's not plug-and-play, we should answer immediately their question. It's why we are strengthening the team in China in order to optimize, let's say, the customer support on this aspect. Thank you. Perhaps to finish on the supply chain in China, yeah, the two other reasons to have the supply chain in China are the lead time. We need to reduce our lead time in China and also the cost aspect, obviously. Thank you very much, sir. We will now move to Ruben Devos of Kepler Cheuvreux. Please go ahead. Your line is open. Yes, good morning. I just had a follow-up on China still. Just thinking about maybe, let's say, the last 12 months and also recently what has been happening around tariffs and sort of the hostility between China and the U.S., have you been seeing, let's say, a structural shift in China towards more local content initially, but then also a preference for non-U.S. origin chips in the customer design ends? That's a first question. Yes. The short answer is yes. We have seen some requests from Chinese customers coming to Melexis for this reason. We have set up, let's say, a work group in China in order to address those opportunities. Yes, we have seen some moves in this direction. Okay. I believe you said 28% of sales was China, right? How does that percentage compare in terms of design end? I cannot answer directly. I can say that for the first time in Q4 2024, we had more design win in China than in Europe. Clear. It's higher than the 28% anyway that we have in sales. Yes. Okay. Okay. Just a second question around foundry, the foundry mix. I think last year you already added a foundry next to XFAB. I think it was a Korean foundry, if I'm not mistaken. Now you're also looking into China. Just could you give us a general overview of how the foundry mix will look like, let's say, by 2026, 2027? How much of the sourcing will happen across those three foundries and for which applications mainly? In 2026, 2027, the very, very vast majority of the production will still be in XFAB because you know that the trend of the business is very, very slow. In the future, XFAB will remain our main foundry partner. Thank you, sir. We will now move to Marc Hesselink. Before we do that, ladies and gentlemen, could you please limit yourselves just to one question? One question till the audience signals. You can come back with follow-up questions. Thank you. Marc, please go ahead. Yes, thank you. The question is also on China. If you move to this Chinese foundry and also with the earlier move to the other foundry, what are the impacts on your gross margin? Are they going to be similar, or do you also get some gross margin benefits from it? Maybe in the run-up to that, do you have some one-off costs from switching to the other foundry, as in in the design phase, given that you use maybe some different toolboxes from the foundries? Yeah. On the second question, what we want to do is we do not want to copy an existing chip in another foundry because, as you mentioned, it is a lot of development costs which are a bit wasted. We want to focus our development effort on new products, on innovative products. The first strategy is not to copy-paste a product in China, but to develop, and I repeat, with a China process. We want to develop new products that fit the need in China, indeed, to not waste, if I can say it like that, to not waste our development efforts. On your first question on the GPM, yeah, it is also depending on the market price. The market price in China is for sure different than the market price outside China. It means that I don't expect that the GPM will be improved, let's say, with this China process. Thank you, sir. We will now move to Robert Sanders of Deutsche Bank. Please go ahead. Yeah. Hi, good morning. You've mentioned in the past that China is two to three years ahead on the powertrain. I was wondering what you thought that measure was for software-defined vehicles, and how do you play into software-defined vehicles? Do you have a particularly good content story there? It'd be good to just hear a bit more of that. Related to that, do you need to be on the reference designs from big players like NVIDIA and Qualcomm going forward? Thanks. Yeah. The software-defined vehicle will need exactly in the same way sensors and drivers in order to sense, let's say, the environment of the vehicle and the driver to actuate the different valves. The basic need will be the same with the software-defined vehicle than for the vehicle today. There are a lot of discussions with the OEM, and we are part of this discussion, indeed, to define how the sensor will be connected, let's say, to the ECU. There are different options. There are different architectures with a main ECU in the car and some, let's say, secondary ECU on the different applications of the car. The discussion is, indeed, will the sensor and driver connect directly to the main ECU or to the secondary ECU? Will the software be inside the product, inside the sensor, or inside the ECU? All those discussions are ongoing. For sure, Melexis is part of the discussion with the OEM directly because it's really important for us to understand in advance, yeah, how our product will be connected and if they need, let's say, a simple sensor or a sensor with more intelligence. It's a bit early to answer the question. What I can say is that we are very much involved in those discussions with the OEM. Also, the basic need of sensor and driver will not change. Thank you for your questions, Mr. Sanders. Ladies and gentlemen, once again, if you have any questions or follow-up questions, please press star one at this time. We'll now go back to Mr. François Bouvignies of UBS with a follow-up question. Please go ahead, sir. Yes, thank you. I didn't have the chance to follow up on my previous one. Did I understand correctly that China is down year over year? I mean, Karen, you mentioned quarter-on-quarter seasonality, but you also said year over year, right? Correct. Indeed, but the whole Melexis is 18% down quarter on quarter, I mean, versus a year ago. China is much less down, but it is still down. Yes, the inventory correction is also impacting China. That's the point I wanted to ask. Is China, I mean, this is the first time I hear that they are doing some inventory correction in China. I'm sure it will happen or it will happen at some point. This is the first time I hear China down year over year. When you look at the car sales in China, it's fairly healthy. The hybrid and EVs is very healthy. The outlook is okay. I'm a bit surprised to have China down year over year. At least the first company that I've been hearing, maybe I'm missing, that China is correcting inventories in China. Can you give a bit more color on that? I think a difference that we have noticed between China and the rest of the world is that China did not ask any push-out or any cancellation at the end of last year, while the rest of the world has requested a lot of push-out and cancellation, not in China. We did not receive such a request from China. Okay. I still don't understand why it's down year over year so much. I mean, it must be inventory correction, but the demand is very strong. I don't know. I'm a bit confused. Yes, there are also European players in China that are not always doing so well. Okay. Understood. Thank you very much. We have another follow-up question this time from Robert Sanders of Deutsche Bank. Please go ahead. Yeah. Just relating to the last question, my last question about NVIDIA and Qualcomm. If the intelligence moves to the zonal computer, then that leaves you doing a kind of slave sensor to those companies. Why would you not end up working with the NVIDIAs and Qualcomms on a reference design? I mean, certainly, Elmos is doing that. They're very excited that they're on these reference designs from NVIDIA and Qualcomm, yet you didn't mention anything on that. Yeah. Today, indeed, I repeat what I've said. We are in contact with the OEM mainly to define, indeed, the architecture and the need of the product. Okay. Thank you. Thank you, Mr. Sanders. As we have no further questions, Mr. Biron, I'm going to tell—sorry about that. We have one more question just came into the queue, sir. It is Nicos Colocotronis of Van Lanschot Kempen. Please go ahead. Your line is open. I have a question on the backend. Before, it was mentioned that you expect yields to improve towards the second half of 2025. Can you provide a bit more color on what's causing this improvement, and is it related to the qualification ramp-up of production with the Chinese partners? Thanks. No, no. It's not linked to this. It's more linked to the, let's say, it's more a pain of increasing capacity. The fab have increased their capacity. They build up, let's say, new equipment, and we are still suffering, let's say, for the ramp-up of those new equipment with bad yield. It's why we still need some time, let's say, to digest the wafers with the lower yield to fix the technical problem. It's why Karen mentioned toward the end of this year, we should see the result of all those activities. It's more linked to a ramp-up of new capacity in the fab. Perfect. My second question is on the inventory levels, which continued going up in Q1, currently standing at 210 days, which screams pretty high. Can you comment a bit on what you think about this going forward over the next quarters? Yeah, that's my second question. Your question is about the inventory level at Melexis, I understand. Yes, exactly. Yeah, we expect that to further increase as we are building up a strategic inventory because we cannot exclude also. I mean, that is for sure also a scenario to take into account that we grow further, I mean, that we continue growing throughout the year. We know that when the pickup will happen, it will be a sharp increase. We know also that the supplier which will be able to supply the part will win. We want to be ready with, let's say, the right part in the right inventory in order to be able to grasp new business when the pickup happens. Okay. Do you think you are actually, you're happy with these levels going forward in order to be ready for the pickup, or do you want to increase a bit more actually? We still want to further increase it. Yeah. Okay. Thank you. Thank you. What's your question, Nicos? We do not have any further questions at this time. I'm going to call back over to Marc Biron for any additional closure remarks. Thank you. Thank you, Operator. In summary, Melexis is navigating the current market condition and continues to focus on growth drivers through innovation and strengthening our presence in China. The steps we are taking now are making Melexis stronger, and we will enable our customers to win within our target markets like automotive and robotics. We will report our Q2 results on July 30. I want to thank you for joining our call and tell you goodbye. Thank you. Thank you very much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day and goodbye.