EnSilica plc (ENSI.L) Earnings Call Transcript & Summary

Welcome to the EnSilica plc Full Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself however the company can review all questions submitted today and will publish responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand over to the executive management team from EnSilica plc. Ian, good afternoon, sir.

Good afternoon. Welcome, everyone. Thanks for joining us for the audited results presentation for the year ending 31st of May 2025. I mean this has been a year of strategic progress defined by robust contract conversion. And we converted six contracts, and this really shows that we're positioned well in the semiconductor value chain. We've also had great growth of chip supply. But disappointingly, the total revenue is down, and this is due to customer-induced delays. Resilience to this is being built up through the strong supply revenue, which means in future years, we won't be susceptible to these -- to the variation in revenue. Just the normal disclaimer for the forward-looking statements, please read at your leisure. Just for those that are not familiar with the company, I'm a Co-Founder. I started my career as a electronics engineer at Plessey, moved into semiconductors in the mid-90s, working for Hitachi and then Nokia. I set up in EnSilica in 2001, originally as a design consultancy. In 2016, we started the transition to be one of a fabless ASIC company, and we'll explain more about what that means in the slides and our progress. I'll let Kristoff introduce himself.

Good afternoon. I'm Kristoff Rademan, Chief Financial Officer. Originally from South Africa, I spent my first formative years working as an auditor with KPMG. I then left for the pharma and biotech industry, first working for Archimedes Pharma and then subsequently as Group Financial Controller at Oxford Biomedica plc, a company listed on the main market of the London Stock Exchange. I've been with EnSilica now for 18 months. Thank you.

Thanks. So as I mentioned, EnSilica, we're a fabless chip maker. We don't have a fab ourselves, we use the same business model as NVIDIA Broadcom, Marvell. We focus on mixed signal chips. These are high-value, high-margin chips. These are the same type of chips, the likes of Cambridge Silicon Radio, Wolfson, Dialog Semiconductors, Nordic, all scaled on the back of. So they're highly differentiated silicon chips. I mean our assets are our people, IP customers and suppliers. We have nearly 200 staff in three continents. They're a highly skilled team with a track record of developing chips and getting them into production. And designing chips and getting them into production is very much a team sport. It's not about individuals. It's about having competent teams. IP is also very key in developing chips. These are blocks that you reuse from chip to chip. We have IP, which addresses all of our key markets as well as things like post-quantum cryptography IP, which is cryptographic IP that is resistant to attack from quantum computers. So actually, really the latest type of cryptographic IP. We have a global customer base, including well-known companies like Siemens, to scale-ups like AST SpaceMobile. Suppliers are important, building strong supplier relationships with wafer fabs such as TSMC and GlobalFoundries, and we have direct relationships with those. And also the OSATs, which is outsourced assembly and test companies, these are the people that chop up the wafers and test them. So we have direct relationships with those, which takes time to build. I mean, we're focused on three markets, and I'll talk about those markets as we go through the slides. Our revenue comes from designing the chips, and that's either the chips that we have future supply on, that's for the NRE, non-recurring engineering fees, where we co-invest with the customer to design the chip, and we later supply it. And then the other area is consultancy, which is where we really started the business and is still a key area for us. And in that model, we don't supply the chip. The customer looks after the supply chain. And the supply revenue is around selling the chip or a royalty per chip. I mean, one investor described this as the easy revenue, and it's a bit like an annuity stream where good high margins, good visibility, and we have a recurring revenue stream from that. I mean, our business model, it takes 2 to 3 years to design the chip where we have the NRE revenue. And then the markets that we address are all sort of high-value, long lifetime markets where we have 7 to 10 years of chip supply. You build a portfolio of chips and some of those chips will overdeliver, some may underdeliver, but that's caused natural hedging in there. And I said this portfolio of chips will protect us from ups and downs in the NRE revenue. A strong IP. I talked about IP at the top, but it's important to have IP, makes you more efficient in the design, but also leads to higher gross margins and allows you to differentiate your position. So our ambitions and objectives, I mean, we're approaching a really key phase now, one where our supply revenue will support our future investments and overheads before sort of noncash charges. And we're targeting as a company to be cash flow positive on a month-by-month basis during 2026. Our ambition is to have revenues of GBP 60 million in the short term and through the -- when Kristoff goes through the slides, he'll show you an illustration of how we can get there just with the current bookings we have. Longer term, we have ambitions of greater than GBP 100 million. And certainly, one of our space user terminal side can exceed that revenue aspiration. Our objective is to capitalize on the growing European opportunities driven by the need for geographical resilient supply chain. I mean some of these geopolitical uncertainties have really played to our favor in terms of European companies wanting European-sourced chips. And our objective is to keep attracting qualified and talented engineers to deliver on our growing opportunity pipeline. And we're doing very well there. We've got excellent people, and they attract good people.

I'm pleased to present our financial year 2025 financial results. We were disappointed with the outcome of our revenues where we achieved GBP 18.2 million. This is a decrease from the prior year. In financial year '24, we had a large tape-out that did not recur in financial year '25. We were expecting to deliver growth but were impacted by the Edge AI tape-out moving into financial year '26 and also the halting of the SIAE project, which impacted our revenue generation. We are seeing significant progress in financial year '26, where we -- our revenues year-to-date are significantly ahead of those achieved in financial year '25. Gross profit margins have come up by 4% from the 36% achieved in 2024. This is also due to the non-recurrence of the low-margin tape-out in financial year '24. We expect a small increase in margins in financial year '26, but not greatly so. It should be more or less the same levels. Included within other income is our RDEC tax credit. Due to the change from the SME scheme to the new merged scheme, there is a requirement under the financial accounting standards to present the RDEC tax credit under other income, which we have done. The expected credit loss of GBP 1.8 million is almost entirely the SIAE provision for bad debt which the company prudently decided to take and also remove SIAE from our forecast. We are still in discussions with SIAE at present and would hope that the project will restart in financial year -- in 2026, but that does depend on SIAE being able to manage its commitments and meet its commitments. We achieved a breakeven EBITDA, which was a good result considering the headwinds we suffered during the year, but we are looking to significantly improve on that in financial year '26. Next slide. So just looking at the revenue split, we were very pleased to announce that chip supply revenues have increased by 97%, almost doubling in financial year '25. That shows that our business model is working. Our chips and supply have increased in -- both in volumes and in number of chips, and we're looking to increase that further in financial year '26 and beyond. As I mentioned before, we were disappointed with the NRE revenues achieved, which is mainly the tape-out in financial year '24, which didn't recur and also the SIAE revenues which weren't generated. Consultancy revenues are slightly down from the prior year. The reason for that is that some of the employees working on consultancy side were pulled into the NRE side. But the consultancy remains a key pillar of our future growth, and we are looking to slowly grow that in future back again to normal levels. Next slide. Balance sheet. So the main balance sheet items, intangible assets increased due to our co-investment in our customer development NRE project and also our own internal IP, which we then look to use in future development projects or to license out or achieve royalties on. During the year, we capitalized GBP 5.8 million, and this was offset by amortization and impairment. The impairment is mainly related to the SIAE asset, which we had to impair at the same time as providing for the intangible. Cash, the movement will explain further in the cash flow statement. And then external loans increased due to the refinancing with Lloyds Bank of Scotland of the GBP 6 million facility, which increased the loans. And then, of course, we've also repaid some of the balance during the year. Next slide. So coming on to cash flow. We achieved a breakeven EBITDA. We had positive working capital, which was driven by the new NRE contracts for which we achieved favorable payment terms, which allowed us to invoice upfront for the work that is being performed. The tax credit of GBP 1.2 million was achieved. This is down from the prior year, mainly due to the change in schemes by the government, meaning that the tax credit wasn't as favorable as it's been in prior years. It wasn't really due to a lowering in activity because our activities were at more or less the same levels. Intangibles and CapEx investment we spoke about, GBP 5.8 million and then GBP 0.7 million of IT and manufacturing equipment. And then interest paid more or less the same level. There wasn't a piece of one-off interest due to the refinancing, which is not expected to recur in financial year '26. So we should see a lowering of the increased cost. Our cash consumption was GBP 5.3 million. I would point out that GBP 5.1 million of that was in the first half. And in the second half, that slowed to GBP 0.2 million. We're not -- definitely not saying that, that will continue exactly at that level, but we will and have seen a significant decrease in cash consumption across the last few months. The net proceeds from financing, it included GBP 1.2 million of the tail end of the equity raised at the start of the last financial year and then also the net GBP 1 million from refinancing of the loans. We received GBP 2 million of new equity and then repaid about GBP 1 million during the year, which gives us that net. Thank you. And just to give you an overview of how the company is doing in terms of the chips that we have in our portfolio. We have five chips in supply, one additional one -- or sorry, two additional ones were added during the year being one industrial one, which is ramping up nicely, one space one for which we've received the first royalties and is expected to slowly increase in '26 and then really ramp up in '27. We've also got the other 12 chips in development, which are scheduled to tape-out, quite a few of these, during the next 6 to 12 months. So they are progressing very nicely. We've got $40 million of contracted NRE from our new contracts, which is being generated between financial year '25 and financial year '27, giving us good visibility over revenues. And then we've got $250 million of lifetime supply values -- revenues, which is from our existing portfolio. We do not include chips where there isn't a final customer identified yet. So this could increase as we generate new customers for our current chips in supply. Thank you. And then just looking at our growth platform, we've tried to show an illustration of the potential revenue evolution that the company could experience. This is not meant to be a forecast. This is to give an indication of if the supply revenues continue as -- for the existing chips as they currently are going and the chips in development for which we have customers, if these are completed successfully and go into chip supply as expected and the customer is successful in selling it, then we would expect our future revenues to increase as shown here. Some of the chips could do worse, some of the chips could do better. And one of the things that gives us comfort is the fact that we've now got a portfolio of chips, which means we are not wholly reliant on only one or two chips. Also, we have some potential space chips that are not factored in yet because they don't have a final customer, and if these are very successful, then we could do even better than this illustration suggests. Thank you.

Okay. Thanks, Kristoff. And I'll talk you through the markets. And one of those is the space communications sector. There's a lot of investment going into this sector, both private investment and also through government contracts and government funding. So it's a high-growth sector, I think, Starlink has proved that resilient space connectivity is -- it's a requirement and everyone is looking for an alternative to Starlink's service. Chips are a key enabler for the space communication sector that reduce power, size and deliver the required performance. It's a bit -- I'd say they're sort of the picks and shovels of this gold rush. So they're used in four areas within the space sector. They're used in the satellite, it's called the payload and there RFICs, beanformers and processing units. They're used in the user terminal, which is the piece of equipment the actual subscriber has to connect to the Internet and they have millimeter-wave chips, digital beamforming chips, modem chips. And then the other area where they used is the gateway. This actually connects the Internet to the satellite, sometimes called the ground station and they tend to be high performance pipes or optical links. And the other important area is that one called position navigation and timing. People might know this as GPS or GNSS and this is around getting positioning and timing information that -- I mean the user terminal needs that so it knows its position and where to point the satellite, but it's also used in drones, defense applications and resilient to jam-proof GNSS. It's very important now. So here's a sort of list of the sort of European, U.S. constellations. As I said, everyone's heard of Starlink, but there's lots of other ones in there. IRIS2 is the European constellation. There's one from Amazon. And 6 months ago, we only had one of these as a customer. And now we've actually got feasibility contracts with -- or chip evaluations going on with four on here. So real progress has been made. So talked about the payload, and there's one particular chip in the payload, very complex one called the beamformer. And this goes in the satellites and the satellite has a phased array and it controls the footprint of the coverage as the satellite goes over the -- as it goes around the earth. So we had a contract with AST SpaceMobile back in 2021. We did a joint release with them, and we were supporting them in developing their payload ASIC, which gives us sort of tenfold improvement in processing power. I mean, we've built some unique experience and expertise in this and currently have three new feasibility studies for beamforming ASICs, two with satellite operators and one with a satellite sort of supplier, manufacturer. These engagements, when they progress, will lead to multiyear, multimillion ASIC contracts. I'm not saying that all of those will convert into contracts, but I would expect one or two of them to convert. Interestingly, that -- and we did say this in an RNS where we announced the first royalty payment. One of those contracts, we have a -- what you might call a chip-as-a-service type model where we get a monthly revenue from every satellite using the chips in service. And I think that's an indication of the real unique value that we're demonstrating to the satellite operators through our chips that they're giving us a piece of their revenue pie. So we're strategically positioned here to capitalize on these opportunities. We've got proven experience in what they call advanced node mixed-signal and digital beamforming, and we are one of the few trusted independent European suppliers. I mean, it should be noted that one of our competitors in this area, SatixFy, that were also doing payload beamforming chips were acquired by MDA Space and acquired for a pretty sum, and they really are now an internal resource of that company and not independent anymore. So the user terminal, I said you could think of this a bit like a sort of a set-top box that you'd use to pick up satellite TV, but it's a lot more complicated. It's got to both receive and transmit. And the satellite is moving, so it needs a thing in there called a phased array, which uses a beamformer to track the satellite. We've been working in this area since 2018. We've secured GBP 20 million of funding from lead customers, European Space Agency and U.K. Space Agency. We have four chips now, which are sampling. So we have the physical prototypes of those chips out with customers and three more in the development and all of that IP is owned by EnSilica. So they're what you call ASSPs application-specific standard parts. We've got multiple funded engagements with satellite operators to support the adoption of these chipsets. We've got here the number of chips per user terminal, different types of chips. We're the only provider who has all of the key ICs that go into a user terminal. And that means we can provide a highly differentiated integrated solution rather than using bits of LEGO from other places. So we can add -- we've added novel features, and we have a sort of patent-pending architecture with strong IP in this area. It accelerates our customers' time to market and gives them better performance. We are using mainly a European supply chain on this. So that's very attractive to the European satellite service providers, using our chips rather than chips from other regions. So the automotive and industrial area, I mean, they're very similar in ways. They're all about high-quality longevity of supply. It requires cybersecurity, functional safety features. And the combined automotive-industrial market is worth just over $160 billion. We say about 5% of chips are actually ASICs, so designed for one particular customer. So really that's an $8 billion market. There's a high barrier to entry to getting into this market. And we've been working on that for some time. Those customers are looking for high reliability, quality and a supply chain. So you need to build up those systems to supply. And what you also need in all of this is you need to sort of carve out your key niche in this area. And our niches are around cybersecurity, functional safety, things like motor actuator controllers and sensor interfaces. So it's important to have those niches, to have the IP, which you can reuse from one chip to the next. And we started off with our first win in 2016 within industrial then a win in 2018 with an automotive one, very -- highest functional safety rating. And then recently, we've had a win -- two wins with Siemens, who are the market leader. And we have major automotive Tier 1s as our customers, which I said there's a very high barrier to get on the customer list of these companies. So we talked about those six projects that we converted. I mean, we're working on those and probably the RNS we released on Monday, the 3rd of November, you see we're progressing well with those -- with those projects. And we also have a new wave of projects, which start off with feasibility studies for various chips, both in the space sector and in the automotive and industrial sector that will lead to our next wave of design wins. So we're really making great progress there.

So in summary, we had six excellent new NRE design wins during financial year '25. And one of the key highlights for me is that these are progressing as planned with some of them expected to tape-out in this financial year '26, and after which they'll hopefully go into production about 6 to 12 months after that. So good progress is being made. Because of the contracts and our success in our supply chain revenues, we're seeing good visibility of revenues for financial year '26 and beyond, as I've mentioned before. We've got a strong pipeline of opportunities. There's about $400 million at the moment in the sales and opportunities pipeline. We won't win all of that, but hopefully, we will win a portion of that. Our supply revenue is building strongly, doubling this year, and we hope to see significant growth again in financial year '26. And we've got strong relationships with major semiconductor fabs and OSAT companies. Thank you.

[Operator Instructions] But just while the team take a few moments to review those questions that have been submitted already, I'd just like to remind you that a recording of this presentation along with the copy of the slides and the published Q&A can all be accessed via your investor dashboards. Guys, as you can see that we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. But Ian, Kristoff, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great.

Thank you. So running on to the questions, first one, is there any particular reason why the new joint broker has not yet issued a research note? We expect the research note will be published by the end of this week to coincide with our year-end results. Can you please update us on developments relating to the new satellite user terminal chips and their potential in terms of value to the company?

Okay. I mean, I covered the progress on that on the user terminal chips. So as I said, there's good progress there. We've got those four chips with samples being released and the evaluations going on. I mean, in terms of the value, I mean, we -- I don't think the real value of the design win is reflected in our illustration there, but user terminals are sold in the hundreds of thousands to many millions. Starlink has 8 million subscribers. So one design win itself could be in the hundreds of millions. But we're looking to get -- I showed those constellations there. We're looking to get some design-ins in those constellations.

What expectations do you have for the PQC 3-in-1 IP block in terms of value to the company? Does the company plan to see further opportunities in the quantum computing space?

Okay. I mean just to be clear, so post-quantum cryptography is not quantum computers. What it is, it's a cryptography, which is resistant to attack by quantum computers. So the 3-in-1 IP was designed to be very low area, so it could be deployed in both mature ASICs as well as using the latest nodes. As you may have noted, we licensed that original PQC in 5 nanometers. So we see this as a basic building block. Every chip needs strong cybersecurity to stop it being hacked and that's driven by the Cyber Resilience Act and lots of legislations. So we've got a great piece of IP there that we see deploying in lots of chips, including our satellite communications chips.

Provided all criteria are met in terms of margins and creditworthiness of the customer, does the company have the scope within the next 12 months to take on a contract in excess of GBP 100 million? The answer is yes. Normally, the structure of the contract would be something like GBP 15 million to GBP 20 million would be the NRE development income and probably GBP 80 million to GBP 85 million would be the supply. We've done this level of contracts before. So yes, we would be able to do another one of these contracts. So what benefits to date have been gained since joining the TSMC Design Center Alliance?

Okay. Okay. So I mean, in terms of that, we've done joint marketing, including going to TSMC symposiums, which is only open to TSMC partners. We get enhanced support from them as well as actually being listed on their website. So we've had referrals coming in through that program. There's also a lot of prestige that goes with it. I mean, TSMC do a very strong audit on your IT facilities and the security of that as well as make sure that they take references with customers. So just the prestige that goes with that is worth it.

What benefits can be expected from the strategic partnership with Codasip? Do you envisage forming similar relationships with other companies from now on?

Okay. So Codasip have quite a unique piece of IP. They have a RISC-V, which is a type of processor core IP that uses a CHERI instruction set, which is something that both the U.K. government and U.S. government have been promoting because of its strength in cybersecurity and reducing memory leakages. So we see that as a building block for developing the hardware security elements with within our chip. We also have a similar partnership with Arm. You can go to Arm's website, and you can find information on EnSilica there. And we have less-formal partnerships with many of the other IP providers such as Cadence and Synopsys.

Can you please update us on the partnership with Oriole with regards to future supply of chips and expected revenue flows?

Okay. So just for the audience, so Oriole Networks are a U.K.-based well-funded start-up. They're doing photonic switches, and we announced we're developing their chip. I can't say anything about their volumes, but I expect them to be very successful. They've got a very strong management team with a good track record and some very good people funding them. So very exciting there. And we're really pleased to be supporting a U.K. start-up like that.

How many contracts are you expecting to announce before the end of financial year '26? We are still targeting three to four contracts. We've signed a number of feasibility studies, which we are working on at the moment, and we expect that some of those will turn into longer-term partnerships and contracts. We're also looking at other contracts with potential customers. In which niche area of the EV market does in EnSilica operate? What is the current demand for these chips? And can we expect to see any contracts signed in financial year 2026?

So I mean anything for the automotive sector now has to be EV compatible. So EVs themselves, they often require redesigning of the chips because of the different voltage levels and also that EVs have a different set of actuators and motors in there, not just to drive the drivetrain, but for things like the cooling system and other things. So our focus in this area is around things -- motor actuator controllers, H-bridge controllers, but also sort of sensors. So I would expect to see another automotive design win, which will be EV related because everything is going in that direction.

What is the growth in employee numbers over the past 12 months in both technical and admin categories?

Okay. So on the technical side, we've added 28, which takes us to 185. On the admin side, we've added 2, which takes us to 14. And then you may have seen we took on a team in Budapest, I mean, that was 18 altogether, which was one admin and the rest engineers, very skilled engineers with functional safety and automotive expertise, very related to EV. And we also took on a team in Cambridge with millimeter wave IC expertise to support the user terminals. And all those people are busy on funded projects.

What is EnSilica ADAS Limited? EnSilica ADAS Limited is a dormant subsidiary that was set up a number of years ago. It's currently dormant, as we mentioned, and we may activate it in future. But at the moment, it's expected to stay like that. Double [indiscernible]. Firstly, thanks again to all EnSilica staff for their hard work in financial year '25. Thank you. As well as the very positive progress and new contracts update on Monday this week. My question is, there has been speculation in that British firms cannot be involved in the EU's IRIS2 project even as subcontractors. Does this correlate with your understanding?

So it's an EU project, and we would come in as a component provider and not a prime. So there's nothing that is a non-EU component going into that. I mean, as I mentioned, we focus on a European-based supply chain for our chips as much as we can, which really would put them ahead of, say, U.S. or Asian based. I mean, particularly with U.S.-based technology, there's a thing called ITAR where they don't really want those ITAR components in there. But we're classed in, say, I think it's a Class B subcomponent. So we see we stand a good chance of getting a design slot in the IRIS2 constellation of some form, user terminals or beamformers, et cetera.