Integrated Micro-Electronics, Inc. ($IMI)

All right. I think we can start. Good morning, everyone, and thank you for taking the time to join us for our first quarter earnings briefing. Let me start with the global macro environment. The most recent hot topic in the industry, and I guess, across all of the industries has been the Middle Eastern conflict and how it's injected significant uncertainty into global markets. Most institutions, including the IMF World Bank have revised growth expectations downward to reflect this development. Economists were initially forecasting a gradual decrease in inflation this year, but the situation has spiked global inflation rates for 2026. We also recognize that further downside could materialize should the conflict worsen. The good news is that despite this backdrop, IMI has not seen any adverse impact on our operations to date. And still, we're not resting our own laurels, so are proactive with contingency plans in place to ensure continuity and resilience across our global footprint. We're collaborating daily with customers and suppliers to get the forecast solid and make sure that any lead time disruptions are well-managed. In Mobility, the structural trends remain firmly intact. ADAS adoption continues to climb, supported by government mandates and OEM safety road maps. By 2025, most analysts see nearly 3/4 of newly manufactured vehicles will carry at least one ADAS feature. And we saw that last year, and this is probably going to climb even further moving forward. So it will not be too far away that 100% of vehicles will have at least one ADAS feature, which it's a market that IMI is actively chasing and is an established presence in the market. A trend we're seeing crystallize in the market is Driver Monitoring System, more and more countries, particularly in developed nations are making this a hard requirement for all vehicles sold. So this will contribute to the steady rise of electronic content per vehicle, which is projected to reach half of total vehicle cost by 2030. Moving forward -- one last bullet. Meanwhile, elevated fuel prices have pushed consumers towards hybrids and EVs. In the U.S. and EU, EV inquiries are up 28% since the conflict started and EV market share has already risen from 19% to 15% from last year. These trends reinforce long-term demand profile for IMI's Mobility portfolio. Moving on to the connectivity and medical markets. The medical electronics segment is projected to reach $140 billion in [ '26 ]. That represents a 14.5% year-on-year expansion, driven mostly by a rising diagnostic and monitoring needs. On the connectivity side, AI workloads are reshaping data center architectures with the total expected workload handled by AI forecasted to double to 50% by 2030. So within the connectivity segment, data centers are one particular subsegment that we're actively pursuing. And we're seeing good traction there, and we're able to serve that market through many fronts through the EMS side and through the power module side as well. So the shift in the share in global workload handled by AI is placing greater emphasis on power efficiency and thermal management. These are now central to electronics demand, the data center market in 2026 and beyond. These trends align well with IMI's capabilities in high reliability and high complexity manufacturing. Okay. Before I pass you off to Robert and Lau for the financials, I want to mention that this is our first full quarter in a long while with just core operations of wholly owned subsidiaries without VIA. That said, our slides and talking points now speak fully about the core operations with the VIA figures in the slide, just left in just to complete the picture for 2025. So we've also adjusted the one-offs that we're recognizing and how it's distributed for any analysts who want to dig in and understand the bridge between our reported numbers in the filings and the non-GAAP adjusted numbers we're presenting in this call, send me an e-mail, and we'd be more than happy to walk you through the numbers over a call. With that, I'll pass you off to Robert for the financials.

Good morning, everybody. Our -- from a segment breakdown between Mobility and Non-Mobility, basically for Mobility, we have a 2% quarter-on-quarter decline, but a nice 1% increase over Q1. The Mobility market has been stabilizing in the European market, which had been soft for us previously. There's a 4.1% increase in vehicle sales, largely driven by a 26% increase in battery electric vehicle sales. And the majority of IMI end market in Europe and North America have limited impact on the Middle East conflict. However, the European market, I think, is seeing some increase in the battery electric sales because of the higher fuel prices. So that is helping the EV part of the market, particularly in Europe. And so IMI is really well-positioned to capture growth in demand driven by these government-mandated safety features that Brian had mentioned earlier, such as the driver monitoring cameras. On the Non-Mobility side, things are relatively flat year-on-year. Our Non-Mobility business now accounts for 36% of our non-core business as we continue to strive to increase that percentage to get more balance between Mobility and Non-Mobility. We did have some push-out in demand for some wireless payment application customer. But we have sales teams that are really highly focused now on driving towards data centers, medical segment, and power module, and Lau will talk to that in a bit more detail later. Next slide. Some interesting picture from a region perspective. Philippines industrial security business has fully recovered, although it's partly offset by push-out in demand of the wireless payment system I mentioned earlier. But you can see year-on-year, our Philippine operation is really powering along with a 14% growth. In China, quarter-on-quarter growth, on a smaller footprint. So you can see year-on-year, we have a 4% decline from Q1 and the year before on a smaller footprint, but we're growing the business quarter-on-quarter. From Europe, we're getting some recovery in demand, particularly in the Mobility market. So we can see year-on-year growth of 3%. And the only kind of not-bright spot in the picture right now is Mexico, which is down both quarter-on-quarter and year-on-year as we strategically exit some low-margin accounts and the better margin accounts will be coming on stream into Q2 and beyond. Next, I'll hand it over. I think next slide is for Lau, and then I'll come back for the balance sheet.

Hello. Good morning, everyone. So I'll be presenting in more details the quarter 1 performance, highlighting the -- just the core business and to begin with the revenues. So the revenues is at par with last year with a slight increase in the Mobility segment, but offset by some push-out of demand in the Connectivity segment. And remember, we used to have some telco infrastructure businesses last year, which we have decided to exit as part of the company's portfolio strategy. But despite the flat revenues, we -- significant improvements are reflected in the gross profit margins as we are seeing some improvements in the material costs and also the effect of the footprint consolidation resulting to the improved fixed overhead utilization for the group. There was a decrease compared to the previous 2 quarters in revenues, but this is a normal trend, to have low Q1 levels, but most of the decline is push-out of demand in the Connectivity segment, which is expected to be recovered in the succeeding quarters. And the margin in Q4 is on the high side, mainly -- this is mainly due to sales mix with higher Non-Mobility revenues and also the effect of lower revenues on the fixed overhead utilization. That's why there's a slight -- there's a decrease from Q4 to Q1. On operating income on the upper right chart, significant improvement is visible compared to Q1 of last year coming from improved GP margins, coupled by the further reductions in the general and administrative expenses, mainly we have some lower costs like professional fees and insurance. And compared to previous quarter, even if the revenues and GP margins are significantly higher, operating income is much better, but this is because of the conservative financial provisioning we did in Q4 of last year, including some additional provisions for inventories and some few expense accruals. But in terms of the operating income margin, Q1 2026 is at 4.9%, which is within the range of the Q2 and Q3 of last year. Lastly, on the net income chart, net income is also showing positive trend, exceeding both Q1 of last year and the previous quarter. And our continuous strive to reduce our debt levels helps improve our bottom line with the reduced interest expenses and -- but it's slightly offset by some impact of euro depreciation resulting to some ForEx losses in Q1. And this is affecting our balance sheet because in Europe, our revenues are mostly -- are still in euro, but we have some unfavorable effect on our U.S. dollar purchases or payables. So that's the ForEx loss, but it's somehow being offset by the effect of depreciating peso because depreciating peso is favorable to the company. Yes. I think that's it for this slide. Lou, you want to take on the EBITDA side?

Sure. Thanks, Lau. So as you've heard, the theme of this conference call is that in our Q1 at IMI is that our NPIs, many of the new programs that we are scaling up to replace business that we negotiated our way out of over the last 18 months was pushed out, was slow. We did not convert on all of the business that we wanted to in terms of bringing into production. We had some component shortages that we had to deal with. We had some tooling issues that we had to deal with. All of these things are dealt with now. And I think this is a scenario where the goodness, the value is -- it's not that it went away, it's that it's delayed or pushed out a quarter. So we remain really bullish on where our company is heading. And year-over-year, Q1 is always for our company, the slowest quarter. And we still did show a 6% year-over-year EBITDA gain moving from $14.6 million in Q1 of '25 up to $15.5 million. Now -- and that's core-to-core. So -- and that's important because we did have benefit from $1.5 million of EBITDA from VIA last year, which we don't have today. But if you do look at our core-to-core business, we were up in that 6% range, which is, I think, good for us based on some of the other things that happened to us in the quarter. So there's a continued shift of business toward our higher-margin segments, especially in some of the divisions of the company that have traditionally struggled. This is Mexico. This is power module. This is camera. These are 3 really strategic pieces of our business that we're turning around and that we're really, really bullish on. And we see good things happening there for the future. We are still driving manufacturing efficiencies, reducing scrap, reducing downtime, changing the way we production schedule moving basically to an automated tool rather than spreadsheets. We're working lean all over every one of our factories, and we see good things coming from that when it comes to labor utilization and yields and scrap. We're negotiating better raw material and component, especially in the electro-mechanical area. This is an area that we found we can differentiate ourselves on. We've brought on a new group that's based in India, and that is a component engineering group that's doing really, really good work for us. And we're excited about that because that's value we can bring to our customers in an area of the supply chain that's really, really important and often gets overlooked. So we see really good things happening in that area that we're excited about. But net-net, stay tuned. Our EBITDA is going to continue to improve as we go through this year. And I think you'll be happy to see what you see in the coming quarters. I'll pass it back to Robert for balance sheet discussion.

Yes. Thanks, Lou. So I think we put on this nice trend chart for our net debt position, which you can see back in 2023 Q4, we were at $253 million. And I'm pleased to see that in Q1, we've decreased it now below $100 million. So that's a significant achievement as we continue to pay down debt and generate cash for the business. So our net debt position at $95 million is really driving a nice net debt to total equity ratio, which is very conservative now of 0.37. Our current ratio is very healthy at 1.32. And I think what I really like to point out on these calls is in our book value, as we continue to earn on the bottom line, is our book value is at PHP 6.99, while our share price is still down around PHP 4. So there's a lot of upside, I think, in our stock. Our loan payments have led to a 20% reduction year-on-year on our interest expense. Our net debt level is we're very comfortable with it right now. We will be using cash generated. We do have some CapEx plans. We are expanding our Serbia facility. So we'll be spending more money on CapEx this year than we have in the prior 2 years. And we'll do that from internally generated cash. And overall, our balance sheet ratios are very comfortable and well within our targets. Next. And then on the CapEx, it's always a slow start to the year when we're spending money on CapEx. Last 2 years, we were under $10 million of CapEx. We will be spending well over $20 million this year. We're at $2.5 million so far this year. And you'll see that number increasing as we get towards the end of the year as the build-out on our Serbia facility progresses. Next. So I'll hand it back to Lou.

Thanks, Robert. So key takeaways from Q1 and heading into Q2. Sustained EBITDA growth, that's the year-over-year 6% growth that I talked about earlier. Our flat top line does represent softness in the overall market, but I believe our wallet share and customers and our growth with new program wins will enable us to grow nicely versus the overall market in coming quarters. So stay tuned for that. As we do that, as we begin to grow, we'll get into higher factory utilization and improve manufacturing efficiencies, and that really will help us to improve our bottom line because we really, today, are not operating at full capacity. And so as we bring in new business, we don't need to make major new investments to support it. We're also doing a great job on the sourcing side. Even in some cases, as material costs are coming up, we're doing a great job of focusing our spend on our strategic suppliers and negotiating our costing to go down or to stay the same. And that has a great effect on our bottom line and is also very positive for our customer relationships. Comment on the Middle East conflict. It really has had no, from my perspective, material effect on IMI revenue so far. We're collaborating with our customers and our suppliers to mitigate the operational impact on our business. Early forecasting of orders and managing lead time is something that's extremely important for us. So we avoid the use of airfreight. We're really, really trying to work closely with customers on the supply chain side to make sure that we're planning really well. And that if anything, we are carrying more inventory slightly than we need to be to protect schedules and to prevent us from being in a situation where we have to expedite freight. Significant share of our energy, by the way, is sustainable. This is something we've worked on for other reasons, not to save money, but to save the environment. And today, it's paying back, right? We're seeing situations with our competition where their rates of energy are increasing by 15%, 20%. In some cases, they're being throttled back in places like the Philippines where energy is constrained due to this Middle East conflict. In our situation, because we're on the renewable side, buying power and generating power from renewable sources, we're in a much better place than our competitors, especially in this business where energy is a big part of the cost of doing business. As Robert explained earlier, our balance sheet is robust. When we first got here 1.5 years, 2 years ago now, the balance sheet was not robust. So I am really happy to see that our cash conversion and our cash cycle is really strong, that our net debt continues to go down quarter-over-quarter. I think you're going to continue to see that discipline. And every quarter -- every month, every quarter, quarter-over-quarter, you're going to see that discipline turn into shareholder equity. And that's something that is -- should be of great value to any and all of our shareholders who are paying attention. From a CapEx perspective, we do have some selective CapEx we will do this year and moving into next in businesses that we believe are extremely strategic for us and that will grow nicely with very strong margins. And that is our camera business on the driver side monitoring, part of our Mobility business. That is our power module business and specific to data center power module. And that is also our business in mechatronics, where we've got a very big differentiation against our competitors. So future growth. This is something that you've, again, heard Brian talk about earlier in the conversation tonight, camera, active safety, and regulation that's getting put in place. The regulation for driver side monitoring is already in place in Europe. We're seeing great improvements in volume because of that. I think the trend is to see regulation for driver side and passenger monitoring to be put in place in the U.S. very soon and in Asia in time. The power module business continues to go strong for us, especially as the power business is constrained by packaging. If you look at now the performance of the higher-end power modules, it's the packaging that is constraining performance, not the die or the wafer itself. It's how do we get the thermal? How do we get the heat out of this? How do we pack in as much technology as we can to enable the features and functionality of the die without creating all kinds of problems when it comes to heat? Lastly, plastics and machining and, basically, our global mechanical business is going strong. We have the machines in place in the Philippines. I'm happy to say they are running. And we've got lots of customers in the Philippines that we had in the past outsourced plastics to or for. And we had to go to China to get that plastic because the supply base in the Philippines is not strong when it comes to outsourced injection molded precision plastics. Now we have that capability in-house. The same is true for machining, and this is precision machining. So for our business in access control, and smart locking, and data center, and a lot of our other connectivity business like sensors, where we bring mechanical and electrical together, having this all under one roof within our control helps us to keep the NPIs or the lead time, time to market very short and helps us to keep control of costs for our customers and for ourselves. The last thing that I'll say to you is please really pay attention to what we're going to be doing in power module. I talked about how packaging is constraining performance. But one of the things that we're really doing is we're really investing in design in this business. We're really investing in advanced process technology. These are things like silver sintering, which is becoming very critical in the business. We brought in that capability and are one of the leading players in that process technology. We're using new and advanced substrates like epoxy. We are implementing double-side cooling. We're using silicon carbide. We're using gallium nitride, GaN. All of these capabilities are being put in place at our power module packaging business in the Philippines. And our customers are extremely, extremely excited about this. And we're really excited about where that's going to take us with that business in the next 6, 12, 18 months. So thanks a lot. Stay tuned.

Okay. And with that, we'll open the floor up for any questions.

Yes, I saw that question, Brian. I just flew back from Delhi 2 Fridays ago. So India is, I believe, a critical market for IMI. And I think there's a lot of exciting things happening in India. And I personally, as the leader of this company, am very committed to being in India at some point. We're having many discussions there. We have been hiring engineers there. We have an engineering team in Coimbatore, southern India. We'll continue to grow that team because I believe in the incredible competency of the engineers there and the value that they provide to our company. We have customers on both the automotive and industrial side that want to see us there. We have customers that want to see us there for power module packaging. Today, there isn't a good high-performance power module packaging company doing business building in India. Today, there isn't a great camera module manufacturing company for automotive in India. So stay tuned. Great question, important market. We're paying attention. Big jet lag, by the way, going back and forth to that region.

Okay. We have a question. You mentioned that several new programs were pushed out rather than lost. Could you quantify [ all of them ] from the first quarter into the succeeding quarters? And how much of that is already secured versus still uncertain? On the topic of how much of that is secured versus uncertain, all of it is secured. Basically, all of it is awarded business. It's just a matter of timing. To quantify that, Lau or Robert, would you have an estimate...

We don't want to give out any projections, Brian. But I'd say that our forecast -- our current forecast for Q2 is quite robust. and significantly -- there'll be a significant improvement over Q1. I don't want to tie any specific numbers to it, but the forecast for Q2 is strong.

Hear, hear.

And maybe I'll just add to it, too. I mean, we're just closing up the books for April. April met expectations on the sales front. So that just tells you how the Q2, if it's meeting expectations, I'm happy with how it's progressing.

How much capital has already been invested into the power module business? We've had the power module for decades now, and there's been a lot of capital invested into it early on. But more recently, any idea, Lou, on -- investments in power module are coming up rather than already happened, but there may have been some...

They're coming now and they're coming alongside customer investments. So we're -- we take a pretty conservative approach to how we invest at IMI. So -- and we may not have done that as much in the past, but we look for customers to step up and make commitments alongside us. So we don't make commitments in new equipment and technology without the customer lined up right next to us. And so I'm pretty excited to say that while we are making investments in power modules, the investments we are making are not one-sided, and they are in combination with the key customers we're developing products with and for. So -- and it's not -- these are not big numbers we're talking about. You saw Robert's CapEx forecast for the year. So power module, camera, we're going to invest in those 2 businesses, together with growing the Serbia site. We sold the Czech plant last year, and we've had a plan since then to put additional capacity in Serbia, much better jurisdiction from a cost perspective and from a labor -- both labor and staff stability perspective. Government is incredibly supportive there in Serbia. So just a lot of goodness all the way around that we're investing into and excited about.

Okay. How concerned is AC Industrials' leadership with IMI's EV products when they made the statement, "EVs is the new GCash." Is this in line with IMI's expansion plans? If not, what does the future look like for IMI?

Yes. I'll take that, Brian. One thing I really want to make sure everybody on the call understands is that we don't -- we're not investing in new business in EV for any specific vehicle, right? Our investments, our business are drivetrain agnostic. So we do -- we focus on mechatronics, which are controls and smarts for windshield wipers, for door and window, for mirrors, for seats, for auto opening trucks, right? We are all about being really good at electro-mechanical manufacturing for mechatronics in automotive. The second business is exterior lighting, our health technology, high-accuracy LED placement, enables us to be very, very precise about how we lay down very high-power LED chips on a board. And so we leverage that in LED exterior lighting applications. And so it doesn't matter if it's going into a Tesla or a GM or a Ford. We're agnostic about what drivetrain these are built for. And then lastly, camera, right? So that driver side monitoring technology goes into any and every car. So if a manufacturer decides to put it in an EV, great. If they decided to put it in combustion engine, great. We win no matter what. So IMI is not a company that is tied into EV anymore. We don't do any charging business. We're completely out of that business. We don't do any drivetrain or fuel cell or battery management business, none of that. I hope that answers that question very specifically.

I have another one here. As IMI expands its exposure to AI and data center-related applications, are you pursuing partnerships or strategic engagements with data center operators, hyperscalers, or infrastructure players in the Philippines?

No, we should be. I think that the hyperscalers of the world are customers that we will, I believe, ultimately be approaching. At this point in time, we're working with the major IC manufacturers in the marketplace, and you know those names or you should know those names if you follow us. So we go to them and we build together with them and then they take the product out through their sales forces and sell to the hyperscalers and sell to the different manufacturers who would buy their products, their ICs.

Okay. That's about it. For any -- if you have other questions, feel free to e-mail me [email protected]. So we're happy to get in touch with you there. And I guess, a nutshell, Q1 results continuing the trend, great results, but we believe it could be even better. So as Lou and Robert said, stay tuned for the following quarters. We're very excited with where year is headed. So stay tuned. Thank you, everyone. Thank you, Lou, Robert, Lau.

Thanks, everybody.

Thanks, Brian. Take care.

Thank you. Take care, everyone.

Bye, everybody.