Good day, and welcome everyone to the X-FAB quarterly conference call. My name is Matt, and I will be your operator today. During the presentation, your lines will remain on listen only. If you require assistance at any time, please press star zero on your telephone and the coordinator will be happy to assist you. I'd like to advise all parties that this conference is being recorded. With that, let me hand it over to Mr. Rudi De Winter. Please go ahead, sir. Thanks, Matt. Welcome to the X-FAB second quarter 2022 results. Today, we have in the call, Uta Steinbrecher, our investor relations and myself. Alba Morganti, CFO, is excused for medical reasons, and I wish her a quick recovery. In the second quarter, X-FAB generated revenues amounting to EUR 189 million at the upper end of the guidance, up 17% year-on-year and 6% quarter-on-quarter. Revenues in X-FAB core markets reached EUR 155 million, up 20% year-on-year and 7% quarter-on-quarter. There share in the group's total revenue further increased to 82%. Remember, 5.5 years ago, automotive, industrial, and medical was only 48% of the group's revenue, and we turned it around to more sticky long-term business. We recorded strong double-digit growth in the second quarter across all our key end markets and achieved record revenues in the automotive as well as industrial. Revenues were supported by favorable product mix, price increases, as well as growth in quantities. Silicon carbide revenues continued to grow strongly in the second quarter, amounting to almost EUR 13 million, up 78% year-over-year and 5% quarter-over-quarter. In addition, the successful ramp of volume production of X-FAB automotive 180 nm technology at X-FAB France contributed to the automotive growth in the second quarter. This brought the share of the French site's revenue based on X-FAB technologies up to 52%, while the legacy business further decreased as planned. In the second quarter, X-FAB's CCC business recorded revenues of EUR 33.6 million, up 3% year-over-year and 3% quarter-over-quarter. The prototyping revenues in the second quarter came in at EUR 20.5 million, flat year-over-year and down 17% quarter-over-quarter. This is mainly due to several customer-specific projects having reached production milestones and thus now being counted for as volume production. Demand continues to be strong throughout the past quarter. This is however not reflected in the second quarter bookings. In light of ongoing negotiations relating to price increases as well as long-term agreements with customers, X-FAB paused accepting firm orders for 2023 until the commercial conditions are fixed. Progress is being made to achieve the target to cover about 70% of X-FAB long-term or X-FAB business with long-term agreements, typically three or more years. Due to the persistently high demand, the allocation of capacity had to be continued throughout the quarter, and X-FAB remains in close contact with its customers to agree on minimum quantities required to ensure supply chain stability on the customer side. Now going into the operational output. The operational excellence and productivity improvements continue to be a primary focus at all manufacturing sites to meet the customers' demands. The delivery of new equipment as well as the ongoing activities to have them installed and qualified were key to eliminate production bottlenecks and increase wafer output. X-FAB proceeded with its capacity expansion programs across all sites to prepare for the planned long-term growth that we see firming up with the long-term agreements. Therefore, we kicked off a major expansion project at our factory in Malaysia in line with the high demand for automotive 180 nm technologies. X-FAB plans to invest more than $500 million in Malaysia over the next three years to significantly increase manufacturing capacity of this technology. Once the investments are completed, the site product processing capacity will increase by about 50%. Full year capital expenditures are expected to come in at about $200 million for 2022. In the second quarter, they were a total of $37 million, down 25% from previous quarter. This is partially due to the longer than expected delivery schedules for equipment due to current tight supply chains. Thanks to risk mitigation measures from X-FAB has put in place to ensure a reliable supply of raw materials, so there were no supply bottlenecks impacting production in the second quarter. X-FAB also continued to expand capacities for silicon carbide as well as silicon carbide epitaxy, thus responding to the accelerating demand. Quarterly bookings for silicon carbide came in at about $15 million, up 21% year-over-year and down 31% quarter-over-quarter. Following an extraordinarily strong previous quarter. With respect to the booked quantities of wafers, the second quarter bookings were in fact 10% up compared to the first quarter. Relatively more bookings were made based on consigned substrate and therefore the US dollar amount is less. We, however, do not mind customers to consign wafers as X-FAB margins predominantly on the device processing and it binds less capital. The development of standard silicon carbide processing blocks, we call it X-blocks, which allows our customers to benefit from faster technology releases and reduce time to market, keeps drawing attention and interest from new customers, resulting in increased customer base for silicon carbide. Now let's move to the financial updates. The second quarter EBITDA was EUR 42.5 million with an EBITDA margin of 22.5% within the guidance. Despite strong revenue growth, the EBITDA margin went down 0.5% compared to the previous quarter. Rising costs continued to put some pressure on margins, but additionally, there was an exceptional item concerning the award of an arbitration between X-FAB and a supplier. X-FAB made a provision for this portion of the award. This relates to the full interest payment in the amount of EUR 12.4 million in the financial result, as well as the full legal fees of EUR 1.4 million in G&A. As said, this is related to a case with the supplier where the supplier, based on the document signed in 2018, claims X-FAB had to buy a certain amount of material within a defined time period. Due to the then existing market circumstances and ongoing discussions about quality of the supplied material, X-FAB did not order the allegedly required amount in the set time frame, and the supplier started an arbitration. We made a provision for interest payments as well as legal fees, totaling EUR 13.8 million, and X-FAB is required to pay a further EUR 36.8 million to the supplier, provided that the supplier is required to deliver the material. This is a one-off financial impact, and it does not influence the X-FAB fundamentals. In absolute terms, EBITDA was 3% up quarter-over-quarter and down 2% year-over-year due to a favorable one-off effect in the second quarter last year, related to EUR 6.5 million received in context of COVID-19 related government support. Excluding this, the EBITDA increased 15% year-over-year. If you further exclude the one-off from the previously mentioned legal case, the real operational EBITDA went up 19% year-on-year. The euro sales was 42% during the second quarter, and the current weakness of the euro had a negative impact on revenues. At a constant US dollar exchange rate of 1.2 as experienced previous year, revenues of the second quarter would have been EUR 10.5 million higher and the EBITDA margin is not impacted due to our good natural hedge. Now the outlook for the third quarter, the revenues are expected in the range of EUR 82-92 million with an EBITDA margin in the range of 20%-24%. This guidance is based on exchange rate of 1.02 US dollar to euro, meaning an additional headwind of the exchange rate. We can now also further narrow down the full year guidance to revenues in the range of EUR 750 million-EUR 790 million, and then the EBITDA margin remains in the range of 22%-25%. The full year guidance is based on an average exchange rate for the full year of 1.06 for the euro. Overall, I can say in the current geopolitical and economic environment that is marked by a high level of uncertainty, I'm very glad about the business X-FAB is in. We continue to see unprecedented strong demand for our technologies that's mainly driven by the accelerating electrification. This holds particularly true for the automotive market, where X-FAB has a very strong presence. Going forward, there is a very high focus on production execution, and I would like to thank all X-FAB employees for their engagement to maintain production lines running at full steam despite the challenges arising from higher absence rates as well as increased logistical challenges. With this, I'm ready with the introduction, Matt, and I'm ready to take the Q&A. Thank you so much. Everyone on the line, if you would like to ask a question, please press star then one on your telephone. If you then decide to withdraw the question, simply press star two. Just to remind everyone, please press star then one to queue up for questions. Thank you. The first question is coming from Michael Roeg. Please go ahead. Hello. I want to ask about this exceptional item. Was it reported before? Was there ad hoc news about it? Explain more about the further risk, as far as I understood you spoke about EUR 36 million. Well, it was reported in the annual report. Well, it's obviously reviewed by the auditor, but we refrain from any further comments because we are bound to confidentiality, and we don't want to influence the ongoing case. Thank you. The next question is coming from Robert Sanders. Please go ahead. Yes. Hi there, Lieven. Thanks for taking my question. I just had a question regarding the seeming difficulty to cover the 2023 sales with LTAs. Is that a function of disagreement about pricing or volume or terms or cancellation terms? Or is it just kind of more of a negotiation tactic? How relevant is this business number in the context of strong demand? There is absolutely no problem to cover 2023. The problem is the opposite. We're far heavily overbooked, and demand is much higher than our production capacities. It is just that we do not want to book, so we need to have agreement on the commercial terms before we enter a booking, because we don't want to fill up the backlog with orders on old pricing, and once that taking advantage of price increases. Is there any change in the customers' appetite for tolerating price increases next year? No. I mean, for example, STMicroelectronics is saying that it's a bit harder to put through price rises next year than it is in the current year. No, I would say that the first thing I would like to point out that the LTA agreement that we signed, they're not accounted in the bookings. The way we record bookings is firm orders with price, delivery date, and items. They need to be described what kind of product and asset and so forth. The LTAs they typically describe capacities and commitments to buy those capacities over a certain time frame, but they are not specific on the product, and therefore, they, we do not account them in the bookings. Okay. On this disagreement around material supply, I think I remember in the annual report you talking about kind of prepaying for a lot of materials from a certain supplier. You’re saying that the quality was not up to scratch, but also of course, the demand didn’t materialize for you guys either at that time. Is the likely outcome gonna be a cash payment, or is there a chance that you could just say, "Look, we'll take now that the demand is strong, we'll take, you know, different but better quality materials," and, you know, therefore the cash outflow will be at least you'll get something for your original kind of commitment? Yeah, sure. I certainly can't confirm the comments because the case is still ongoing. Fair enough. I guess my last question would just be around CapEx. Can you just talk a bit about you know, CapEx next year versus this year and perhaps the year after? What are you thinking at the moment? Thanks. I believe that the CapEx might probably further go up next year. A portion of the LTA agreements will also require prepayment to book in the allocations, and that will also help us significantly with the financing of the additional expansions. We typically ask like 10%-15% of 15% of the total volume of a three-year contract. Got it. The amount of money there in the next three years going towards France versus Malaysia, it sounds like most of the consideration is going towards Sarawak activities. Is that right? Well, we are expanding in all the sites. Relatively, the expansion in Malaysia is from a financial CapEx perspective, the largest one, yes. Got it. Thanks a lot. There are no further questions in the queue, Rudi. Just a quick reminder, everyone. Please press star then one to queue up for questions. Thank you. The next question is coming from Trion Reid. Please go ahead. Hi. Yeah, thanks for taking my question. Hi, Rudi. Just follow up on Rob's question about the CapEx. You mentioned this $500 million over three years. Is that just for Malaysia and on top of the numbers you've talked before? I think we spoke about $200 million this year, maybe even $200 million next year. Maybe if you give a bit more color on your expectations for CapEx sort of this year, next year, and the year after. Then I'm interested in what you would consider to be a kind of new maintenance CapEx level. I think in the past it was sort of $50-$60 million, but I guess with all of this new CapEx going in that level will be higher. I've got another just a follow-up question. The CapEx of $500 million is just for Malaysia over the next two years. For next year, there will be also. I guess next year the CapEx is also the way we book this is also depends on, for instance, negotiations on prepayments and so forth that we need for equipment. A typical model is that 30% of the equipment is paid at ordering. That was usually in the past, however, with sometimes like two years lead time of equipment, it's not reasonable to ask already 30% for an equipment that they're going to do. Therefore there is a new different arrangements and depending on how they come like that will also have an influence on the CapEx spend in next year and the year after. Obviously we try to push it as much as possible in the future and align it with the deliveries of the equipment. For next year I think that the CapExes will be somewhere in the range of between EUR 200 million-EUR 300 million that we have seen by now. Okay. Anything to say about the maintenance level once? The question on the maintenance CapEx. That will remains somewhat the same, as of the EUR 60 million as we something like 7% of revenue. It's the more we do expansions with new equipment and so forth, then of course they don't need immediate maintenance CapEx. Okay. Thank you. The second question was just on the prototyping revenue, which you know it can be lumpy, I guess. You mentioned some prototyping turning into volume production. I guess that's happening all the time, and we haven't had this fall off. Well, we have. Yeah. It depends. We have two different business models. On the one end we have our standard technologies where customers do prototyping and make a mask check and do the prototyping, which is one business model. The other business model is where we develop customer specific technologies. This is particularly the case in MEMS and in the silicon carbide where every customer has a specific solution. When these developments progress and they are shortly before production start, it's quite common that there are larger quantities that are DOE and corner lots that are made to study the maturity and the robustness of the process. We had quite some of that in the silicon carbide that now moved into production and also a bit of the MEMS in the product moving production. Okay. What does that mean for our sort of future expectation of prototyping? I guess. Well, I think. Is it this new level? The level where we are now is a good level. Thanks, Rudy. Yeah. It was somewhat higher the previous quarters, but yeah, so there's no concern around that. All right. Thank you. Your other question from Robert Sanders. Robert, please go ahead. Yeah. Hi, Rudi. Just to continue the questioning about pricing. I mean, there is quite a lot of news going on out of Asia that China-based foundries are cutting pricing by about 10%. You know, consumer facing foundries, doing display drivers, microcontrollers, that sort of stuff. I guess my question is at what point does that start to affect at least the consumer part of your business? I know that you're generally single sourced and all of that, but I mean, when can market pricing start to affect your business? When should we expect that? I do not expect it to influence our business. The technologies that we're offering are quite unique and also these consumer projects or even projects for consumer markets, they do. I do not see there pressure. I expect that our consumer business to further go down in next years and maybe reach something like 15% or between maybe 13%-15% of our revenue, while we see stronger growth further in our core markets. It is particularly the work that we're doing in France for the, you know, legacy business that is still running today, but that will further decrease going into 2023. I'd be interested, you know, given your experience with Melexis as well, like, when do you think orders from the automotive industry will start to be in line with production? I guess the reason I'm asking is 'cause, you know, IHS is quite well-respected. They're saying orders are equivalent to 120 million cars at the moment in this year, whereas there's only 80 million cars that are produced. I was interested to sort of think, just to understand when you think that there will be enough replenishment and buffer stock built that we could see kind of the demand signal, the ordering signal matching the production in the field. Well, if I see my discussions that I have with our customers, this is not going to happen for X-FAB in 2023. We have sold. We are fully booked and customers are eager for more quantities in 2023. Got it. Thank you. The next question is coming from Michael Roeg. Please go ahead. Yes, good afternoon and good evening. I have a couple of smaller questions. The first one is on Malaysia. Once you have expanded that capacity by 50% in three years from now, what would be the extra sales potential from that? That's something in the range of $170 million. Okay. Mm-hmm. In terms of product portfolio, would this carry gross margins that are roughly similar to the group average, or is this something higher or lower in terms of mix? Because the additional capacity comes with quite high depreciation, so with our cost structure in Malaysia is good. That would come somewhat, I think, slightly better than average. It will obviously be less good than what we have today in Malaysia. Once we depreciate. Okay. Yeah. After 7 years obviously that will be also very good margin. Okay. The second question is on the gross margins in the second quarter compared to the first quarter. The gross margin was more or less similar, but your sales were much higher in the second quarter. Typically with higher sales, you think a bit more leverage. Your French fab had also more own technologies, which I also perceive as being higher gross margin than the legacy technologies. Could you explain a bit the dynamics why the margin was flat in spite of the positives from sales and own technologies? The additional sales is a mixture of from a price increase, quantities and product mix. However, there is also gradually some more headwind on costs, in particular for instance, in Germany on electricity. And also additional costs related to spare parts, so machines break down, it's harder and harder to source the required spare parts. We still manage it, so it does not impact the output yet so much. However, they come at higher prices. Then there are also materials, chemicals, gases and so forth, all these items that are also more expensive. We also negotiate higher prices with our customers so that, as of the first of January next year, we should have a much better situation. Okay. There will be no further price increases in Q3 and Q4 compared to the base level of Q2? We have done price increases in the past, and because of the large backlog, it takes us time to ripple that through. There will be further gradual benefits from increases that were initiated already. We stopped the clock. That's why our bookings in Q2 were somewhat lower to make sure that as of first of January, we do not further increase the backlog and reset the clock and have then a better situation here from first of January next year. Okay, clear. My final question. You already mentioned energy prices in Germany. What kind of contingencies do you have, suppose that energy supply in Germany becomes a bit more difficult for the obvious reasons? Well, we can't do a miracle, so we are negotiating with the energy companies and the local governments and so forth to get priority over other users. Because the semiconductors are essentials everywhere, and if factories are down, it will have a ripple effect in the whole of the automotive industry. We cannot do miracles. Yeah, we're dependent on electricity and so forth, so if there are outages or shortages, we need to see how we deal with that. We're on top of it, but we cannot eliminate that risk, no. Okay, good. That's it from my side. Thank you. There are no further questions in the queue, Rudi. All right. Thank you very much, Matt. I would like to thank everyone for the conference call today. Looking forward to hearing from you on the twenty-seventh of October for the closing of that third quarter. Thank you very much, and have a nice evening. Thank you so much, everyone. That marks the end of your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.