X-FAB Silicon Foundries SE ($XFAB)

Ladies and gentlemen, welcome to the X-FAB First Quarter 2026 Results Conference Call. [Operator Instructions] I will hand the conference over to Damien Macq, CEO. The floor is yours. Please go ahead.

Thank you, operator. Ladies and gentlemen, welcome to this quarterly conference call of X-FAB. Representing X-FAB in this call are Alba Morganti, CFO of the group; and myself. In the first quarter of 2026, X-FAB generated revenues of $195.6 million, down 4% year-on-year and 12% quarter-on-quarter. Excluding revenue recognized over time, quarterly revenue was $205.8 million, above the guided range. Our core markets, automotive, industrial and medical represented 94% of the total revenue, reaching $192.9 million. Order intake amounted to $169.4 million, up 3% sequentially, while backlog stood at $308.4 million, reflecting the continued cautious ordering behavior in automotive rather than underlying end market demand. Automotive revenue came in at $121.6 million, down 10% year-on-year. Inventory adjustment and limited short-term visibility persisted, but the structural trend towards electrification, customization and ADAS remains intact. Semiconductor content per vehicle continues to rise, driven by applications such as battery management, thermal regulation and advanced sensing. During the quarter, we secured multiple sensor element design wins, particularly in Asia and China, including gas pressure and acceleration sensor as well as a new road noise cancellation application for electric vehicles. Our industrial business delivered $52 million, up 32% year-on-year, supported by strong silicon carbide demand and growing momentum in data center power management. Medical revenue reached $19.2 million, up 39% year-on-year with solid contribution from pacemaker, ultrasound, DNA sequencing and contactless sensing alongside new medical ultrasound opportunity from our 110-nanometer BCD on SOI technology. From a technology perspective, CMOS revenue was $156.9 million, impacted by automotive softness. Nevertheless, we achieved design wins on our 180-nanometer and 110-nanometer BCD on SOI platform, spanning data center and medical ultrasound applications. Our [ Spot ] technology continued to gain traction across industrial, medical and mobile markets and interest in our next-generation 110-nanometer DCD platform for automotive sensors is confirmed from design wins by our top customer. Our Microsystem and Photonics business delivered a record $33.7 million, up 42% year-on-year, driven by strong customer traction in diverse applications. For example, we successfully established aluminum scandium nitride-based piezo-MEMS production for inkjet printheads and saw growing customer engagement in MEMS resonator and ultrasonic transducers. Finally, wide bandgap revenue reached $15.1 million, up 152% year-on-year. Silicon carbide wafer shipments increased to 14,300 units, nearly tripling year-on-year. This confirms the strong customer pull in this technology. In GaN, we delivered the first 1,200-volt prototype on a 200-millimeter substrate and initiated a vertical GaN customer project supporting increased prototyping activity in 2026. Overall, our technology pipeline, design win momentum and diversification progress clearly position X-FAB for growth as market conditions normalize. And now I will pass the word to Alba for the financial section.

Good evening, ladies and gentlemen. And now let's walk through the financial section. In the first quarter, our EBITDA was $34.2 million with an EBITDA margin of 17.5%. Excluding the impact of revenue recognized over time, the EBITDA margin would have reached 18.4%, which was -- which would have been then within the guided range of 18% to 21%. As you could see, we had a significant reduction of the net sales due to an impact coming from the IFRS 15 revenue recognition over time in the first quarter of minus $10.3 million. This is the natural consequence of the expiration of most of our long-term agreements with some of our customers at the end of 2025. So from 1st of January this year, we are now back to the usual business free LTA with these customers. But the expiration of these contracts triggered according to the IFRS 15 rules, a significant reduction of the quarterly sales. Our net debt went from $285 million as of the end of Q4 2025 to $291 million at the end of Q1 this year, so rather stable. Meanwhile, we reimbursed $26.4 million prepayment of the LTAs in the first quarter, and our total net debt decreased from $480.4 million as of the end of Q4 2025 to $436.1 million at the end of Q1 2026. In terms of profitability, our first quarter was primarily affected by softness in the automotive end market, which impacted on the overall revenue. Given the substantial share of fixed costs, expenses could not reduce proportionately. The positive effect from the ongoing cost savings programs are not yet visible, but we anticipate them to become tangible by the end of 2026, including a headcount reduction in the high single-digit percentage range and a gradual decrease in operational expenditures. Additionally, increased research and development activities during the first quarter led to higher-than-usual R&D costs. Cost structure is actively managed to protect profitability in the short term while maintaining the capabilities required to support future growth when volumes recover. As you know, our business is naturally hedged, which keeps our profitability unaffected by exchange rate fluctuations. At a constant U.S. dollar-euro exchange rate of $1.05 as experienced in the previous year's quarter, the EBITDA margin would have been 0.9 percentage points lower. Our CapEx in Q1 were well in line with expectations and totalized $26 million. CapEx has significantly moderated as we move past the peak of our investment cycle, supporting cash generation and preserving financial flexibility. Cash and balance sheet discipline remain top priorities. Cash and cash equivalents at the end of the first quarter totalized $144.7 million. And to conclude this financial section, I would like to share our next quarter's guidance. As automotive visibly remains limited in the near term, we reinforce our prudent guidance approach. We expect our Q2 2026 revenue to come in within the range of $190 million to $200 million with an EBITDA margin in the range of 17% to 20%. We anticipate a steady recovery of our automotive business in the second half of 2026. This guidance is based on an average exchange rate of USD 1.15 and does not take into account the impact of IFRS 15. I would like to conclude the financial section by saying that we remain confident in the medium-term outlook. Our strong operating leverage, diversified technology portfolio and long-term customer relationship position us well to benefit from a recovery in demand. And now I would like to give the word back to Damien.

Thank you, Alba. Let me start by reaffirming the 3 pillars that continue to guide X-FAB's strategy and execution. Specialization, diversification and disciplined execution. These are not new priority for us. But over the past quarter, we have taken several decisive steps to reinforce them structurally, operationally and commercially. On specialization and diversification, these are the heart of the transformation we have just completed. During the past quarter, we finalized a global reorganization of X-FAB around 3 dedicated business units, each focused on one of our core technology families. We have a Smart CMOS and SOI BU, a microsystem and [ photonics1 ] and a wide bandgap technology, including silicon carbide and gallium nitride. These moves reflect a clear strategic intent. First, it allows us to accelerate the specialization of our technology portfolio by bringing development engineer, technology road maps and business development much closer to our customers. This proximity is critical to enable true co-creation, developing differentiated technologies together with customers and accelerating product ramp-up from R&D to volume manufacturing. In parallel, it strengthens accountability and focus within each technology family, ensuring that innovation is both market-driven and execution-oriented. Second, this structure supports our ambition to further diversify our markets and customer portfolio. By aligning our organization around fast-growing end markets such as electrification, digital health care, industrial automation and AI-enabled infrastructure, we are better positioned to capture growth beyond traditional cycles and to serve customers with very different applications, needs and life cycles. This diversification is already visible in an important customer mix evolution. During the past quarter, our top 20 customer ranking, representing around 75% of our revenues changed meaningfully. The share of our largest customer to our total revenue declined from 41% to 35% due to inventory corrections, but also due to the significant increase of sales generated by customer ranked from #2 through #20. Altogether, they increased their revenue by 21% from Q4 '25 to Q1 '26. This evolution is strategically important for X-FAB. It reflects the diversification of our business and the larger growth of our silicon carbide and microsystem businesses as well as the continued success of highly differentiated X-FAB technologies in automotive applications such as lighting and sensing. We are also seeing continued momentum from our Chinese customers, particularly in the automotive segment, MEMS, battery monitoring systems, silicon carbide and also for new applications like technologies for noise cancellation within the cabin. Turning to disciplined execution. Operational excellence remains a top priority. We continue to improve cycle times, yield and quality, ensuring that our fabs remain competitive, resilient and reliable partner for our customers, particularly in automotive, medical and industrial applications where quality and supply security are paramount. Finally, let me highlight the ongoing transformation of our effort site, where we are accelerating the deployment of microsystems technologies. This site plays a central role in our microsystem and photonics road map and is critical to supporting growth in medical, sensing and next-generation industrial applications. To conclude, our commitment to innovation, strategic business development and disciplined execution remain unwavering as we continue to build the sustainable long-term success of X-FAB for all stakeholders. This concludes our Q1 results presentation. Operator, please open the lines for questions.

The first question is coming from Aleksander Peterc from Bernstein.

I just have a few. The first one is on automotive where you seem to be in a double [ dip ] configuration now with the second quarter of roughly minus 10% declines in your revenue year-on-year. And this seems to track quite closely your #1 client, Melexis. So I'd just like to know if you see a broad-based weakness in automotive? Or is it primarily your #1 client there? And then the second question is, do you see any signs in your order intake patterns that would highlight any potential inflection in the coming quarters? We have book-to-bill that remains quite low and your backlog keeps reducing. It's now 40% below peak. I'm just wondering if you can give us any hints on how this would bottom out? And I have a very quick follow-up, housekeeping one afterwards.

All right. Thank you for the question. On the first question, yes, as I mentioned in the presentation, it is correct to say that the #1 automotive customer reduced their demand quite a bit in Q1, and this is linked to somehow inventory management on their side. At the same time, we saw for the other customers, stabilization of -- in general in automotive. If you look -- if you zoom in on certain applications, we see some good strength, as I mentioned in, for example, battery monitoring systems. And we see also some good strength in front lighting applications. So I would say there is a kind of quarter correction from our #1 customer managing their inventory, and there is some good stabilization and slight increase in certain applications for automotive. Regarding the forecast from discussions with our customers, we see a recovery expected in the second half of the year. So it's not going to be visible in Q2. That's why we remain cautious in Q2, but we see some sign of recovery in the second half of the year. Regarding the backlog, you have to remember that our backlog is also impacted by the End of Life that we made on our site in Erfurt. So this End of Life continues to trigger orders on our side. But yes, the visibility that we get from this End of Life is directly there, but it is not generating some good evolution of the booking overall because all this business was already booked in the past. Does that answer the question?

Yes, it does, yes. That's great. Just a quick housekeeping one for Alba. Can you help us understand where your G&A is going to track for the remainder of the year and into next year, given your CapEx plans as they are presently, where do you see G&A?

G&A, you said? Sorry?

Yes.

Well, G&A is a bit a tricky one, especially this year because we are implementing a new ERP. So yes, these years G&A is also impacted by the implementation of the new ERP SAP in our system. So of course, the G&A costs are going up. So we are facing some years of increased G&A. If you looked at the evolution, you might have seen that already. And this should go down then after the implementation of SAP. We should be running in 2028 -- early '28, we should start with our new ERP. And then, of course, the cost will significantly go down. This is...

Towards '28 and then go down onwards.

Yes, Yes, of course, the cost will fluctuate a bit over the years. Now we have quite a lot of external costs that are normal in this space.

The next question is coming from Ruben Devos from Kepler Cheuvreux.

I just had one on utilization across your footprint. Curious whether you could give us a bit more sense around what that might be the loading either by site or by technology? Yes, I think that's the first question will be very helpful already.

Okay. Utilization globally is in the low 60%. We don't provide utilization per site. So -- but yes, we have -- I think that was also linked to some messages that we provided in the past. We have established additional capacity for the upcoming future. So we are ready for the growth of our business. But the low 60% is also an explanation on some levels that you see today in terms of cautiousness on profitability. What I want to highlight is also that linked to this reduced loading that we see today in our factories. We are taking these actions to continuously monitor the necessary capacity, and we are hiding some tools. We are making sure that the cost control in the factory is aligned with this limited utilization at this moment. So low 60% is the number.

Okay. All right. And I believe you talked about the utilization for silicon carbide back in the Capital Markets Day in September. That was then at a rather lower level. But of course, you've seen quite -- you've reported strong growth now in Q1. Would you mind disclosing what -- how that now is?

Yes. So we have built quite some capacity in silicon carbide. So we can run up to 10,000 wafer a month. And at this moment, we are right at the 60%. Also in the low 60%, we load around 6,000 wafers of silicon carbide in this available corridor. And there, we want to make sure we are ready for the growth that we see quarter-over-quarter. So it's a bit...

And on, let's say, AI-related data center power management. I was wondering what is really pulling you into that opportunity? Is that like sort of the higher voltage and power density angle or is it more of a push for localized supply? Is it simply a shortage of specialty capacity out there? Or yes, a bit more color here would be great.

Yes. I think it's a lot linked to the silicon carbide technology. So we have engaged very, very early with different companies on silicon carbide. I think Navitas is a publicly known customer of X-FAB. And we see really a renewal of the interest of silicon carbide going from applications like power switch for solid-state breakers, but also utilizing energy conversions from 800 volt to system voltage down to 48, 12 or 6-volt. So it's silicon carbide drives a lot of this in terms of production. Also the interest on GaN is for a portion linked to data center. I want to highlight also that the data center on our side is also -- the growth on data center is driving also some additional growth for other technologies like, for example, our technology is used for timing clock to synchronize GPU in racks. So the idea is to reach really atomic precision with the technology, and this is driven from a chip that was built out of [indiscernible] technology. And moving forward, we are also some design wins regarding high-voltage driver ICs to drive the power transistors. So there are multiple applications that are driving some growth on the data center, mostly for energy management, thermal management, but also timing management. The reason why we talk about AI is also and data center is also that we have also an activity on photonics. And in the photonics space, we see also some interest for application of our technologies. But there, we are more in the development phase than in the revenue phase.

All right. And then just a final question. I think we've been reading about some foundries pushing further into power and specialty, right, and not only in China, but also outside China. Also have been reading about some IDMs adding some analog capacity. Is that showing to some degree in your pricing or actually on the contrary, I mean, we've also been reading about pricing actually being increased, right, in certain mature node areas. So yes, how do you think about that?

Yes. We read the same press. We have seen also these articles about price increases in this area. I think there is still a strong push on automation and silicon carbide for automation where probably the price pressure is extreme. We try to stay on applications where the high voltage and the customization that our customers are able to execute on our technology give us a certain advantage. So there is price pressure always everywhere, but I would say we try to get -- to stay in applications where this pressure is sustainable. So I would not see any specific abnormal push towards price down or price up. We see that more from an end application perspective, probably more pressure on automotive and a bit less pressure in industrial, data center, renewable where we like to play.

The next question is coming from Emmanuel Matot from ODDO BHF.

Some of my questions have already been answered, but I have 3 questions to ask you. First, should we expect a reversal in demand for the industrial business as the positive effects of introduction of certain legacy technologies come to an end? Second, can you confirm savings of $6 million by the fourth quarter [indiscernible] figure in mind along the Q4 '25 earnings release? And could you repeat what happens to R&D in Q1 [indiscernible] significantly and I've been disconnected at the time for the call. Is that structural the new level of R&D spending or just something specific to Q1?

Thank you for the question. So first question, reversal in demand in industrial. No, we do -- in fact, we see significant increase in industrial for certain segments. So data center is the biggest one. But I think across the industrial business in general, we see some growth that we have not seen in the past. So basically, the industrial business, if you look at it from a global perspective, is nicely recovery across the board, but with significant growth on data center. I will answer the R&D question and let Alba answer the other question on the $6 million. On R&D, so what we have done in Q1 is a specific effort to improve the quality and the robustness of certain technologies. So that has additional cost of mask and wafers. We are also in the process of creating a second phase of 110-nanometer technology, BCD-on-SOI in France and BCD in Malaysia. And this development -- this joint development that we have in France and Malaysia are creating a phase of additional wafer requirements to qualify these phases. So this is not something that should prolong. It's more linked to some specific effort that we made regarding the improvement of the robustness of our technologies. Do you want to take that?

Yes. And yes, Emmanuel, indeed, we had a softening of the cost reduction effect or results visible. That's clear because, we are just at the end of Q1, and we put some measures that will take a bit longer to be visible, but we still -- we remain confident that our cost savings plan will materialize as expected by the end of the year.

The next question is coming from [indiscernible].

First of all, I see that, of course, in different parts of the business [indiscernible] good to see. However, if we look at the prototyping automotive, it stays always at the same level or it even weakens. Are we having some design missing? Or are we not able to get to the customers to business there because we still have to take into account after the big investments, we normally should be able to double the volume and double the sales figure. But I see that prototyping is lagging behind a one-to-one relationship between and the sales of automotive. But if it is in the long run low, then I'm very concerned.

Yes, that's a good comment, and thank you for the question. So if you look at our historical prototyping, there was a period where the levels were extremely high. The years were the year '22, '23 -- yes, '23 let's say. And that is linked to different effects. [Technical Difficulty] So there was this effect of allocation, but also that during this phase, some of the preproduction that we had in microsystem and also in silicon carbide were assigned as prototype. So we were doing preproduction. In reality, it was production of conditionally qualified material and this was [indiscernible] prototype. So if you look at the long-term curve, there is an anomaly. I think that was already flagged in earlier calls. If you look at more the recent time, the last 6 quarters or 5 quarters, there has been some steady growth after a low level in Q1 2025. But since then, the prototyping, the NREs of our CMOS kept increasing quarter-over-quarter. And Q1 this time is a bit lower versus Q4 last year. But if you compare quarter-over-quarter, the growth is there. So this is definitely a KPI that we continue to monitor. The fact that customers are coming back to us because they see that we have capacity, they see also operational performance improvement is a good sign. What I would like -- I would love to see that this translates into a true quarter-over-quarter growth. The point is if you compare Q1 '26 with Q1 '25 from the NRE on the CMOS side, there is a significant growth. So we will continue to monitor these things. I think overall, the effort that we are doing in sales and the effort that we have done by the creation of the business unit will pay off. And my anticipation is that the level of prototyping will continue to increase. And this is linked also to the interest that we see in our technology. So the BCD over SOI that we have in 180 and 110-nanometer is really gaining traction. The new technology that we are developing a BCD standard BCD on 110-nanometer is also getting some interest from our major customer. So I would say it's a very good point. It's a very good KPI to monitor. But so far, if I look at the plan that we have for 2026, the Q1 results that we have on our prototype are according to our plan. So it's an important KPI. Thank you for asking the question. I hope it answers your question, by the way.

What is also a little bit of concern, of course, is the gross margin is also going down or at least that's the impression that I have. Is there anything happening on that? Or is that just due to the fact of the elimination of the [ $10 million ]?

No, it's mostly driven by capacity and utilization, right? So right now, as I mentioned earlier, our utilization is the low 60%. We would be better to have a higher level of utilization. So we are taking the actions to look at the loading of our factories and that will naturally increase the gross margin of our products.

If I may complement, our cost base is rather a very high fixed cost base. And for the moment, we are rather 70% fixed cost versus 30% only variable cost. Therefore, yes, our leverage is really with -- as Damien mentioned, is really with a higher utilization rate.

It can only be solved if the top line is improving it.

Yes...

That's what we need to get...

It can be mitigated. Alba mentioned the cost optimization effort that we are doing. So on all the sites. We are taking actions to adjust the different breakeven points and the profitability at lower utilization. But as Alba mentioned, these actions, they take time, right? So we should see some positive results in the second half of this year from this cost optimization, but the major effort is on loading.

Okay. So of course, first on getting all the new equipment in and getting all those things done. Now the focus really has to be on getting volume at the right margin and so on so that we can benefit from the big investments.

Absolutely.

Next question is coming from Trian Reid from Berenberg.

It's Train from Berenberg. yes, I just have 2 last questions to ask. The first is just on the microsystems and photonics division, which you renamed from the previous MEMS. Obviously, that's growing strongly. I just wondered if you could give us an idea of how much of that division is photonics rather than microsystems and how much that might be contributing to growth? And then the second question was just on the working capital. It was a small outflow despite the fact you mentioned, I think, about $26 million of repayments to Melexis. So that sort of seems to suggest an underlying working capital improvement. I wonder if you could comment on that and whether that's sustainable going forward.

Thank you,. I will take the first question. So today, photonics is mostly development. So on the revenue, it's all about NREs. We mentioned at the end of last year, the importance of NREs that we got for photonics. So microsystem without photonics broke end of last year, the ceiling of $100 million. And yes, with photonics, I think we were in the range of in the range of $5 million to $6 million NRE end of last year. Sorry, photonics...

Photonics was $7 million.

$7 million...

Sorry, 7% of the total NRE of the group.

Okay. That's -- yes, that's 5.5% to 6%. So that was -- so photonics is mostly and we anticipate product revenues from photonics to hit more around end of '27, '28. So not yet visible outside of NRE at this moment. And the second question, I will let Alba answer on working capital.

So first of all, Trion, good to hear you. For the repayment of the LTA repayment, it was not only Melexis. Of course, largely, they brought a large portion, but it was not only Melexis. Anyway, yes, this is indeed the repayment we made in Q1. And if you look at working capital, yes, it improves indeed. The fact that we reduced the CapEx significantly because we ended up with $0.25 million, so to say, only compared to the high numbers we had in the last 3 years, of course, helps a lot the working capital needs to get back to a normalized level.

There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks.

All right. So I wanted to thank the audience. I want to thank you for participating to this press conference to this Q1 results. And I wanted to give you also an appointment for our second quarter results that are planned for July 30, 2026. So thank you, everyone. Have a good day, a good evening, and speak to you soon.

Thank you. Goodbye.

Bye-bye.

Thanks for participating to today's call. You may now disconnect.