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VIA optronics AG (VIAO) Q4 2020 Earnings Call Transcript

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VIAO earnings call for the period ending December 31, 2020.

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VIA optronics AG (VIAO -3.21%)
Q4 2020 Earnings Call
Mar 11, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome, and thank you for joining the VIA Optronics fourth-quarter and full-year 2020 financial results conference call. [Operator instructions] I would now like to turn the conference over to Monica Gould, investor relations for VIA Optronics. Please go ahead.

Monica Gould -- Investor Relations

Thank you. Good afternoon, and welcome to VIA Optronics fourth-quarter and full-year 2020 financial results conference call. I'm Monica Gould, investor relations for VIA Optronics. Joining me on the call today will be Jurgen Eichner, VIA's chief executive officer; and Daniel Jurgens, VIA's chief financial officer.

Today's call is being webcast live and will be archived on the Investor Relations section of our website at via-optronics.com, where our earnings press release is currently available. Certain matters we will be discussing today, including the business outlook and financial projections for the first-quarter and full-year 2021 are forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in our documents filed with the SEC, including our registration statement and prospectus.

And with that, I'd like to turn the call over to Jurgen.

Jurgen Eichner -- Chief Executive Officer

Yes. Thank you, Monica. Good morning, everyone, and thank you for joining us today. First, I will provide a brief overview of our fourth-quarter and full-year 2020 results.

I will then discuss our key achievements and notable awards in the quarter before I turn the call over to Daniel Jurgens, our CFO, who will review fourth quarter and get into the financial performance and our outlook for the first quarter of 2021 and the full year. Turning first to a brief summary of our financial results. Total revenue in Q4 2020 grew 23% year over year to EUR 44 million, driven by continued growth in our display solutions sector and increased 1% sequentially of a strong Q3. EBITDA was flat with the prior-year period at a loss of EUR 1.1 million.

For the full-year 2020, we delivered top-line growth of 11% and expanded our gross margins by 800 basis points. Notably, during the fourth quarter, we continued to diversify our revenue and increase our sales in the automotive and industrial end markets. We see a large opportunity in both sectors as the total number of displays with features that we are providing cameras and the use of glasses and design elements in vehicles as well as agricultural and construction equipment steadily increases. The technology behind these elements is becoming increasingly more complex and our expertise is well suited to meet these challenges.

At the start, we address this with a great new technology development for ruggedized laptops. Consumer customers have definitely been early adopters of our products and technology, however, more recently, electric vehicle manufacturers are becoming nearly as impressive in implementing new features, which positions us very well competitively. As a result, within our display solutions segment in the fourth quarter, revenue from auto customers grew 77%, industrial customers rose 23% year over year and accounted for 44% of revenue leaving consumer revenue at a total of 29%. Within the automotive segment, we are working with a wide range of customers, including many of the world's largest OEMs and especially EV companies.

Our product design wins and shipments cover our complete portfolio. The strongest drive for our portfolio comes from electrical vehicles. This includes luxury vehicles, trucks, and vans, mainly for cluster and temperature displays as well as all sorts of camera applications like surround, fuel, etc. Back to our gross margin, as margins in these sectors are higher than our corporate average.

With this shift, we also gained greater revenue visibility as some product life cycles are as long as five to seven years. This shift also has a positive impact on our backlog providing the ability beyond 2024. We'll capitalize on the strong and we have seen these markets and prefer they expand our competitive advantages. We will further increase our spending in R&D and SG&A.

We pulled in investments already in Q4. We expect that our operating expenses as a percentage of total revenue will remain elevated as we will continue to pull in investments in 2021 to take advantage of the opportunity to engage in new projects with new customers at a faster rate than previously expected. Given the lengthy design production cycles in the industries, we do not expect our investments to impact our near-term revenue but rather we need to increase revenue over the next three to five years. Now I'd like to turn to some of the progress and key achievements that we made during the fourth quarter.

We are now working with several of the world's leading electric vehicle manufacturers as we continue to expand upon our strong position in this space. We add production with two Chinese EV car manufacturers and we'll be shipping prototypes on several different projects to them this year. With respect to progress that we have made with a leading U.S.-based EV company that we discussed on our Q3 call, we have already shipped hundreds of prototypes. These prototypes have been very well accepted and we, along with our customers, are driving our R&D teams to finalize qualification for mass production.

The production ramp-up is anticipated mid-2021. The construction of the new manufacturing facility that we are building in support of this project is virtually complete, and we are working on finishing the interior before ramp-up production. As we have discussed previously, the facility will have a capacity of 10,000 units per month once complete. During Q4, we finalized the automated production lines in our existing German facility, therefore, increasing our production capacity another 50,000 pieces per month to a total of 60,000 units per month.

This update will not only lower our production costs, it is also an important step on our path to produce parts in China and Germany with the same processes and equipment, thus being able to share production capacity if needed. Having a geographically diverse manufacturing strategy will also help us overcome tariffs and sourcing issues and provides additional flexibility. During the fourth quarter, we initiated a research integration team within VIA that is exclusively focused on developing new technologies and securing our technology leadership. This team is completely decoupled from any profit to concentrate on technologies to expand VIA's market position with new technology developments.

This includes advanced proprietary bonding and support materials as well as free-form glass designs to enable the displays with touch screen technology to be constructed in complex shapes as well as completing the active display systems. With respect to our strategic collaboration with Corning, we are expanding our cooperation by investing in joint development projects for new glass display and touch functionalities, hoping to be able to do joint physical roadshows this year. During the fourth quarter, we received a number of new awards, demonstrating our success. I would like to highlight a few in more detail.

Starting in the automotive sector. We received a new award from a very well-known German sports car manufacturer to develop a first prototype for future interior cameras. With this win, we believe that we are very well-positioned to receive the final award for mass production. We have also received several more awards in the automotive sector from large customers located across the globe, mainly in the U.S., U.K., and EU.

We look forward to updating you on these projects as we begin to ramp up production. In the industrial sector, we received a new project from a large existing U.S.-based customer. This is particularly important as it includes new touch technology that we are currently developing together with a partner for ruggedized laptops. In summary, it has been an exciting year, and I'm pleased with the progress that we made, in particular with our execution in the automotive end market.

Our success is a testament to the hard work of our team and the strength of our proprietary technology. I would also like to thank our partners and our customers for their support this year. Looking ahead, we will continue to execute on our strategy of increasing our sales in the auto and industrial end markets, leveraging our sensor and camera capabilities to deliver system solutions while expanding the number and size of our projects within our particular M&A opportunities that would complement our current technology portfolio or add capacity. We are excited seeing more and more opportunities ahead of us and believe that our expanding pipeline and greater visibility positions us well for continued growth in 2021 and beyond.

With that, I will now turn the call over to Daniel to discuss our financial results and outlook in more detail. Daniel?

Daniel Jurgens -- Chief Financial Officer

Thank you, Jurgen, and good day, everyone. I am Daniel Jurgens, CFO of VIA Optronics. I'll start by reviewing our financial and operating performance for the fourth quarter and full year of 2020 and then provide our outlook for the first quarter and full-year 2021. Total revenue in the fourth quarter of 2020 was EUR 44.1 million, an increase of 22.5% from the fourth quarter of 2019, which was driven by increased sales in our display solutions segment.

Total display solutions represented approximately 86% of total revenue in the fourth quarter, compared to 83% in Q4 of 2019. Within our display solutions segment, revenue from our automotive customers grew 77% year over year in the fourth quarter and accounted for 27% of revenue, compared to 18% in the fourth quarter of 2019. Revenue related to the industrial specialized applications end market grew 23% year over year in the fourth quarter and accounted for 44% of revenue, compared to 43% of revenue in the fourth quarter of 2019. Revenue related to our consumer end market declined 6% year over year in the fourth quarter and represented 29% of revenue, compared to 38% of revenue in the fourth quarter of 2019.

The lower share of revenue associated with the consumer end market was due to our focus on expanding our auto and industrial business. Total sensor technology revenue was EUR 6.2 million in the fourth quarter of 2020, essentially flat with Q4 of last year. Sensor technology represented approximately 13% of total revenue, compared to 70% in Q4 of 2019. Turning to our gross profit margin.

Total company gross profit margin for the fourth quarter of 2020 was 16.6%, up nearly 10 percentage points in the fourth quarter of 2019. This increase was driven by improved margins in the display solutions business. Our sensor technology gross profit margin decreased to 24.2% in the fourth quarter of 2020 from 27% in the fourth quarter of the prior year due to an increased ratio of third-party material being used and additional license fees or newly licensed IP we are using. Our display solutions gross profit margin increased to 15.3% from 2.7% in Q4 of last year, driven by the higher mix of revenue from customers in auto and industrial end markets that I noted earlier.

Turning to expenses. Total operating expenses excluded offset from other operating income in Q4 were EUR 12.2 million or 27.7% of total revenues, which compares to EUR 5.6 million or 15.6% of the total revenue in the fourth quarter of 2019. This increase was driven primarily by higher R&D expenses and IPO-related expenses. Research and development expenses were EUR 1.7 million or 3.9% of total revenue in Q4 2020, which compares to EUR 1.3 million or 3.6% of the total revenue in the fourth quarter of 2019.

As you may be aware, our R&D expenses also increased sequentially from a very low EUR 0.4 million or 1% of revenues in Q3 2020. As Jurgen mentioned, the increase in R&D expenses sequentially, and year over year was driven by increased investments to support our customers' design and production plans over the next few years. Looking ahead, we expect continued investments in R&D expenses. EBITDA in the fourth quarter of 2020 was negative EUR 1.2 million compared to negative EUR 1.1 million in the fourth quarter of 2019.

We recorded a net loss in the fourth quarter of 2020 of EUR 4.1 million, which compares to net income of EUR 1.54 million in the third quarter of 2020. Based on a weighted average share count of 4.52 million shares in the fourth quarter of 2020, this translates to basic and diluted net loss of EUR 0.92 per share in the fourth quarter of 2020 and compares to net earnings of EUR 0.47 per share in Q3 2020. Now turning to the balance sheet. We ended the fourth quarter with cash and cash equivalents of EUR 81 million and total debt of EUR 22.2 million.

For the first quarter of 2021, we expect total revenue of EUR 26 million to EUR 38 million. For full-year '21, we expect revenue growth of at least 20% compared to 2020. The projections take into account the fact that uncertainties remain due to the ongoing COVID-19 situation as well, 11% to EUR 152.7 million from EUR 137.2 million in 2019, driven by a 12% increase in our display solutions revenue and a 7% increase in sensor technologies revenue. Gross profit margin for the full year increased by eight percentage points to 15.3%, up from 7.3% in 2019.

And for the full year, we turned profitable on an EBITDA basis with EBITDA of EUR 6.2 million in 2020, compared to an EBITDA loss of EUR 4.5 million in 2019. Overall, we are pleased with our financial results and are focused on the growth opportunities ahead of us, particularly in the auto and industrial markets. This concludes my prepared remarks. I will now turn the call back to the operator to open up the line for questions.

Thank you. Operator?

Questions & Answers:


Operator

[Operator instructions] The first question comes from the line of Anthony Stoss with Craig-Hallum. Please go ahead.

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

Good morning, guys. Thanks for taking my question. I have several. Maybe I'll start with you, Jurgen.

Can you give us a little bit more detail on the North American EV maker that now you expect volume production in the middle of 2021? My recollection was you were supposed to start this current quarter in Q1. Can you give us any more detail on what's happened? I know you've been sending hundreds of prototypes for quite some time. I'd love to hear kind of more on that. And then also, Jurgen, if you wouldn't mind, if you have it handy, if you have the total design win, what the expected value is or backlog? That would be helpful.

And then after that, I've got a follow-up for Daniel.

Jurgen Eichner -- Chief Executive Officer

Well look, first of all, you're completely right. The [Inaudible] planned a little bit earlier, the problem that we have are the -- but the EV maker is that some parts were not ready in time. So they had to delay it slightly, which is basically so it maybe helps us as well because we, as you know, I think we mentioned it before that we wanted to be part of the production in China and for the ramp up and part of the production in Germany later on and we move over completely. So we will be able to ramp up in Germany earlier, maybe even with the full quality.

But that's still in discussion. So it's not us. It's other parts of the car, which have not been available or are not yet completely qualified. And with regards to the overall volume, the overall volume didn't really change.

So we are talking about several hundred thousands over at least a five years' period.

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

OK. Maybe on the -- I guess that's great color. That's good to hear on the North American EV maker. It's just related to component charges, not something with you.

What I was driving at is total backlog for all your customers, if you've got design wins that you think are coming in the next three to five years, what's the expected value or backlog of all companywide design wins?

Jurgen Eichner -- Chief Executive Officer

Well, I will hand that over to Daniel, but I'm sure whether we are OK to give that number. This is really -- this is -- Daniel, what do you think?

Daniel Jurgens -- Chief Financial Officer

So the current backlog we have for the current year is around EUR 90 million. And the backlog we have for the next year? No. I don't have the full backlog amount on hand here, but we can discuss that in another call.

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

OK. I don't know if you have handy, like a rolling total of number of design wins, either if that's -- just so we can see how it's snowballing if you have that handy as well.

Jurgen Eichner -- Chief Executive Officer

Yes. We'll try to provide more data this year. But we are currently in the process of preparing how we hope so that it could keep -- also for the indicated report that our EBITDA into even 24 is right now already very good. So that's something that we will prepare as well, but we haven't done that for today.

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

OK. That's fine. And then, Daniel, related to the OPEX, can you quantify or qualify that EUR 4.7 million other OPEX category? And then if you wouldn't mind, I know you're investing, and that's evident in the R&D, but can you give us a ballpark as to what your total OPEX is looking like for the March quarter? Guess we get a sense for the run rate for this year.

Daniel Jurgens -- Chief Financial Officer

Majorly the other operating expenses, it's nearly everything related to negative currency effect due to the translation of the proceeds of the IPO. That's the major part of it. And the other question was around R&D expenses. Right? Did I --

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

If you could give us a sense of what you expect the March quarter total OPEX to be?

Daniel Jurgens -- Chief Financial Officer

For this quarter, I would say it will be nearly the same as in the fourth quarter. There are no major changes. What we are increasing, and you will see also for the rest of the year and we will increase and we have to increase R&D expenses and this will also, yes, this will be the major part of cost increase. All the other costs will be nearly the same as of today or in the last quarter.

This will not change too much. Also, we ramp up the new production and the new production facility here in Germany. But most of that is related to cost of sales. So I think, yes, this is the best guess I have.

Summarizing for the upcoming quarters or for the current quarters, we will mainly see an increase in R&D expenses because there are so many RFQs in the house, and we have to handle that and also, we invest in new technology, which is partially not related to any customer, but which should safeguard our innovation capacity.

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

OK. Just to clarify one last time, the EUR 4.7 million in the December quarter, you said that was related to the IPO and the currency exchange. So you don't expect that to reoccur or to that level in March. You would expect selling G&A and R&D to be roughly the same?

Daniel Jurgens -- Chief Financial Officer

Exactly. Exactly. I don't expect that there is too much changes on the currency end for now for the upcoming weeks that we have for this quarter. So you are completely right.

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

So it should be somewhere around EUR 5.5 million to EUR 6 million in OPEX for March.

Daniel Jurgens -- Chief Financial Officer

Exactly. Exactly.

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

OK. Perfect. Great. Well, thanks.

Congrats on the continued progress, guys. Much appreciated.

Daniel Jurgens -- Chief Financial Officer

Thanks a lot.

Operator

The next question comes from the line of Andrew Buscaglia with Berenberg. Please go ahead.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Hey, guys. Thanks for taking my question. Can you talk a little bit about -- you mentioned some awards in automotive. I was looking to see if there -- you have some more details on that.

I believe I heard a new award for a German sports car. Is that EV-related and can you talk a little bit more about that specifically and maybe the magnitude of that award?

Jurgen Eichner -- Chief Executive Officer

Well, it is not EV-related. It's basically a strong development of some car manufacturers in Southern Germany. And we are talking about the new interior camera. And if that camera will go to production, we are talking about a very huge quantity as this will probably most likely be in every car.

So I think this is how far I can go at the moment. We have been the only ones contracted in that area to work with them. So we, as I said, we feel pretty -- if everything was successful, which we basically see as a vision right now, then we should have a very good -- get the complete volume.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Is it -- sorry. So you said it's a huge quantity? Like this is a relatively big award versus previous awards, I'm gathering?

Jurgen Eichner -- Chief Executive Officer

Yes. It would be a very big award. As you can see, it basically takes the -- you can make some assumptions who the automakers are, and as soon as we see the majority of the vehicles, so you can have an easier idea what that would mean. I'm not sure if there will be a second source as well.

There could be, but it's still very big.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. And when would you anticipate starting to see revenues from this in your income statement?

Jurgen Eichner -- Chief Executive Officer

That will be -- I think -- good question. This one I don't have. I think it's 2024, '25, but I would need to check. This is a good question mark.

I can check that a little bit later, but that's what I have in mind.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. And what -- and you -- when you're talking about your guidance, you also mentioned two Chinese EV or -- yes, two Chinese EV manufacturers, I believe. These are -- were those -- those are new -- those are new wins. Correct? I imagine you have been trying to bid those, but they -- do you have greater confidence? Or is that in the books now?

Jurgen Eichner -- Chief Executive Officer

Currently, we have before two Chinese ones, we already have in production one since more than a year now.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. And then you -- I was curious on the industrial side, too. You were talking about a large U.S.-based customer. Can you talk about more like maybe what application that's in or what end market this customer will be coming for? And again, like in order of magnitude, is this a meaningful award?

Jurgen Eichner -- Chief Executive Officer

Yes. So first of all, when we talk about industrial in that area, so we're talking about ruggedized laptops. And the ruggedized laptops are used by many, many clients. So they sell it to [Inaudible], military, for example, to the inspection companies who do outdoor inspections.

So it's really a wide application range for them. And I think they have, if I'm not completely wrong, the highest market share here in the U.S. Now the -- and this is what we -- basically follow our plan to be -- first of all, try to implement things our technologies first in the consumer market, in the consumer laptops. The next step is the ruggedized laptops.

And from there, we diversify into other industrial applications. So ruggedized laptops count to the Industrial segment for us. And with regards of the revenue, I'm going to have to check, but Daniel, do we have the number handy, the overall volume?

Daniel Jurgens -- Chief Financial Officer

No. Sorry.

Jurgen Eichner -- Chief Executive Officer

That's OK.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. Maybe just one last, one item. Your guidance for -- I understand your guidance for the full year. You probably want to be conservative around these semi shortages.

But what about on profitability, are you concerned around inflationary costs rising? And then just generally, maybe having to pay more for the components that you're using to meet expectations with your customers? How are you thinking about, I guess, more on the profitability side versus revenue this year?

Jurgen Eichner -- Chief Executive Officer

So this is a very good question. From the gross margin, and we are expecting it to be on a flat or maybe slightly increase in margin level. About the costs for the whole year, we want to give guidance on the profitability and then with -- on the cost by mid of the year. Reason for that is that we are currently faced to really heavily invest in R&D capacity and in all -- everything related to that.

And due to the fact that, as I said before, we have so many RFQs in the house and so many big RFQs who are really safeguarding our future and we can't currently really say what will be needed and how will the future will look like maybe in the second half of the year, about the spendings we have to take for our future.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. All right. I'll step back in queue. Thanks, guys.

Daniel Jurgens -- Chief Financial Officer

Yes. Maybe just from my side to answer your questions. I just checked, so the industrial laptop is in the range of EUR 30 million overall revenue. And the -- it's just to give you a number, that's what we have in the result.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. Thank you.

Operator

[Operator instructions] There are no further questions at this time. I hand back to Jurgen Eichner for closing comments.

Jurgen Eichner -- Chief Executive Officer

Yes. So thank you. And thanks, everybody, for joining us today, joining the call. We look forward to updating you on our progress next quarter.

And as usual, if you have questions, let us know, and we try to answer whatever we can as fast as possible. Thanks, everyone. Bye-bye.

Operator

[Operator signoff]

Duration: 33 minutes

Call participants:

Monica Gould -- Investor Relations

Jurgen Eichner -- Chief Executive Officer

Daniel Jurgens -- Chief Financial Officer

Anthony Stoss -- Craig-Hallum Capital Group LLC -- Analyst

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

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