VIA optronics AG (VIAO) Q1 2021 Earnings Call Transcript

VIA optronics AG (VIAO -4.76%)
Q1 2021 Earnings Call
May 18, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thank you for joining VIA optronics first-quarter 2021 financial results conference call. [Operator instructions] I would now like to turn the conference over to Cassidy Fuller, investor relations.

Please go ahead.

Cassidy Fuller -- Investor Relations

Thank you. Good morning and welcome to VIA optronics first-quarter 2021 financial results conference call. I'm Cassidy Fuller, investor relations for VIA optronics. Joining me on the call today will be Juergen Eichner, VIA's chief executive officer; and Daniel Juergens, VIA's chief financial officer.

Today's call is being webcast live and will be archived on the Investor Relations section of VIA's website at via-optronics.com, where the company's earnings press release is currently available. Certain matters we will be discussing today, including the business outlook and financial projections for the second quarter and full-year 2021 are forward-looking statements. Such statements are subject to the 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 filled with -- filed with the SEC, including our Form 20-F, which was filed with the SEC on April 29th.

Please note that any forward-looking statements that are made on this call are based on assumptions as of today, and the company undertakes no obligation to update these statements as a result of new information or future events. And with that, I'd like to turn the call over to Juergen.

Juergen Eichner -- Chief Executive Officer

Good morning, everyone, and welcome. Thank you for joining us today. First of all, I would like to provide a brief overview of our first-quarter 2021 results. I will then discuss our key achievements and notable awards in the quarter before I turn over the call to Daniel Juergens, our CFO, who will review our first-quarter 2021 financial performance in more detail and provide our outlook for the second quarter of 2021 and the full year.

As we discussed last quarter, we have been focused on our -- on growing our footprint and revenue in the automotive segment, translating new design wins during this quarter, extending our visibility and backlog for the following years. On top of the automotive business, we could convert more design wins into revenue. And as a result, we are pleased to report that we achieved our first-quarter revenue of 41.3 million, representing a year-over-year growth of 60.7%. Following our plan, we continued to diversify our revenue and increase our sales in the automotive and industrial end markets.

We continue to see a large opportunity in both sectors as the total number of displays with features that we are providing, including cameras and the use of glass as a design element that's steadily increasing. As we noted on our prior earnings call, we increased our spending in critical areas of R&D and accelerated hiring to take advantage of the opportunity to engage into new projects with existing and new customers. Despite the current labor market, we have been able to secure critical talent at a much faster rate than initially planned. These employees are being matched with the new designing opportunities that we have with our new customers.

Simultaneously, we are aggressively ramping our production to meet the increased demand from our customers, particularly in the -- with our automotive clients. Many of these hires were to support our new manufacturing facility in Germany, which we anticipate will be completed next quarter.As you know, there's a global shortage in the semiconductors in markets and other critical components, the combination of higher input costs, which could not be immediately offset and passed on to our customers, and our increased hiring, better dampening effect on our EBITDA for the current quarter. As a result, EBITDA remained flat compared to the prior year period at EUR 1.3 million. We consider this impact to be short term in nature, and we are hopeful that the component shortage will ease over the next few quarters.

Additionally, to minimize the financial impact, we have taken initiatives to pass corresponding cost increases to our customers. Now I'd like to turn to some of our key achievements and awards in the first quarter. The total unit shipments, which include display sensors and cameras, rose 35% over the prior year period. We had another design win with the U.S.

electric vehicle manufacturer for Surround View camera system. We had multiple design wins in the industrial and consumer sector, including four awards in the commercial segment alone. The commercial segment covers notebooks and tablets used for outdoors -- outdoor applications like in the military field. Our partnership with Corning continues to proceed well.

We reached all our milestones last year, and it looks like we will overachieve our expectations this year as well. So overall, the cooperation has led to rapid adoption of the cold-form technology, bringing us into a leadership position. As of today, we have five design wins for our cold-form technology, including one new design win that we secured in the first quarter with a Chinese automaker for dual display module for high-end EV vehicles. All our cold-form design wins have included special cover lens shapes as well as multiple displays behind the cover glass following the overall trend of integrating dashboard electronics behind one piece of glass instead of individual displays in the corporate.

We have a strong track record in the EV market with nearly 10 EV customers. With some customers, we have design wins with multiple models. This is in Europe as well as in Asia and in the U.S. We believe our strategic shift to focus on the automotive market, especially e-vehicles, and the industrial market has proved to be very successful so far.

We will continue pursuing these opportunities and will push for higher system-level awards with our increased investments in R&D capacity. We are well positioned to take advantage of and encouraged by the anticipated growth in the EV market which is predicted to grow 50% to 70% annually. In summary, we are reiterating our full-year guidance for at least 20% year-over-year revenue growth. We believe that the overall market opportunity represents an even higher potential.

Looking ahead, we will continue to execute on our strategy of increasing our sales in auto and industrial markets, leveraging our sensor and camera capabilities to deliver system solutions while expanding the number and size of our projects within our existing customer base. We will also evaluate M&A opportunities that would complement our current technology portfolio or add capacity. We continue to believe that the quality of our growing pipeline, combined with a good visibility from increased auto industrial projects, positions us well for continued growth in 2021 and beyond. With that, I will now turn over to Daniel Juergens to discuss our financial results and outlook in more detail.

Daniel?

Daniel Juergens -- Chief Financial Officer

Thank you, Juergen, and good morning, everyone. I'm Daniel Juergens, CFO of VIA Optronics. I'll start by reviewing our financial and operation performance for the first quarter and then provide our outlook for the second quarter and full-year 2021. As expected, Q1 showed a slightly lower revenue as Q4 as every year, reflecting the seasonality of the consumer business.

However, total revenue in the first quarter of 2021 was 41.3 million, up 60.7% from 25.7 million in the first quarter of 2020, which was driven by increased sales across business. Even considering the impact of COVID during Q1 last year, this would still remain a significant growth. Total display solutions revenues was 35.6 million in the first quarter of '21, up 71.2% from 20.8 million in the first quarter of 2020. Growth was driven by increasing demand in all end markets, particularly in consumer.

Display solutions revenue represented approximately 86% of total revenues in the first quarter, compared to 81% in Q1 of 2020. Within our Display Solutions segment, revenue from our automotive customers grew 131% year over year in the first quarter and accounted for 29% of revenues, compared to 21% in the first-quarter 2020. Revenue related to the industrial and specialized applications end market grew 15% year over year and accounted for 41% of revenue, compared to 61% of the revenue in the first quarter of 2020. Revenue related to our consumer end market increased 188% year over year and represented 30% of revenue, compared to 17% of revenue in the first quarter of 2020.

Total sensor technology revenue was 5.7 million in the first quarter of 2021, up 16.3% from 4.9 million in Q1 of last year. Sensor technology revenue represented approximately 14% of total revenue, compared to 19% in Q1 of 2020. Total company gross profit margin for the first quarter of 2021 was 11.4%, compared to 17.1% in the first quarter of 2020. Our display solutions gross profit margin was 9.8% in Q1 2021, compared to 19.2% in Q1 2020.

The decrease in our gross margin was driven by increased hiring for our new plant in Germany in advance of an anticipated ramp in production and mix shifted toward lower-margin products in the quarter, led by strong growth in our consumer end markets and a strategic decision we made last year to reduce licensing our technology to protect our strong market position. Our sensor technology gross margin was 21.1% in the first quarter of 2021, compared to 8.2% in the first quarter of prior year. The increased gross profit margin was due to increased revenue in Q1 2021 compared to Q1 2020, while fixed costs remained flat year over year. Turning to expenses.

Total operating expenses, excluding offset from other operating income in Q1 were 9.5 million or 23% of total revenue, which compares to 5.4 million or 21% of the total revenue in the first quarter of 2020. The increase was driven primarily by increased spending in the research and development and our general administration expenses for the quarter. We have increased our G&A spend as we prepare for further growth that we are expecting, especially in the even more complex environment of the automotive industry. We are continuing to further strengthen our organization to meet these growth opportunities.

[Inaudible] our expectations, research and development expenses were 1 million or 2.4% of total revenue in Q1 2021, which compares to $600,000 or 2.3% of total revenue in the first quarter of 2020. Looking ahead, we expect continued investments in R&D as we opportunistically add talent to support the development of more complex solutions. EBITDA in the first quarter of 2021 was 1.3 million, essentially flat with 1.3 million in the first quarter of 2020. We recorded a net loss in the first quarter of 2021 of 1.1 million, which compares to a net loss of 4.1 million in the fourth quarter of 2020.

Based on a weighted average share count of 4.53 million shares in the first quarter of 2021, this translates to a base diluted net loss of EUR 0.24 per share in the first quarter of 2021, compared to net loss of EUR 0.92 per share in Q4 of 2020. Turning to the balance sheet. We ended the first quarter with cash and cash equivalents of 74.4 million and total debt of 26.8 million. Turning to our outlook for the second quarter of 2021.

We expect total revenue of 44 million to 46 million. For full-year 2021, we continue to expect revenue growth of at least 20% compared to 2020. These projections reflect continued uncertainties related to the ongoing impact of COVID-19 as well as increased cost of raw materials and component in part constraints, which may affect our customer and potentially impact our revenues. Overall, we are pleased with our strong start to the year as demonstrated by the significant growth in revenue.

We are focused on the large market opportunity ahead of us, particularly in the auto and industrial markets, which also require further investments in R&D and production. 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. I have several questions. Juergen, for starters, the plant now being scheduled to open in Q3, I think that was versus Q2, so maybe one quarter later. Maybe you can update us first off, on the status with your North American EV maker, if you commenced volume shipments or if you're still at the prototype level? And then for Daniel, can you help us understand a little bit better the gross margin? I understand you're hiring more people related to the plant opening in Q3.

What do you expect gross margin to be for the June quarter? And any thoughts on where gross margin should maybe exit calendar 2021? Then I had a couple of follow-ups after that.

Juergen Eichner -- Chief Executive Officer

Yes. Let me start with the Q3. So there's a delay in our factory readiness. This basically is caused by the equipment manufacturer that we have.

However, we have -- we can overcome that by producing more units in China. So it doesn't affect the overall annual quantity but it delays the start of production in Germany. So business-wise, it's not -- it will not impact the overall revenue. However, it will delay the production here, and that's basically why I indicated the Q3.

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

Could you -- go ahead, Daniel, I'll follow up. I'll come back.

Daniel Juergens -- Chief Financial Officer

OK. So thanks for the question. It's a good question. If you look on the development of the gross margin, in Q1 this year we had some impact on the margin coming from several items.

One is that we have been reduced one-time revenues from the reimbursement of NRE costs. We had a change in the revenue mix. This is the biggest impact on the gross margin, and we have seen lower licensing revenues than we had in the previous year, in 2020. This has strategic reasons.

We want to protect our IP. And therewith, we are reducing our very high-margin licensing revenues, but this is a strategic decision. I think it is very helpful in the future even if it costs us some margin points currently. And last but not least, what was impacting the current quarter was the increase in material costs due to the shortages, of course, in semiconductor and things like that.

But also in all other areas, everything is getting much more expensive than before. And you are always not in the position to fully shift all these costs to the customers that quickly, and this will come during the second and third quarter. And last but not least, the freight costs increased significantly, also to the high end of the customers. And the shortage of materials, we have been seeing higher air freight rates that also have been affecting our gross margin.

Coming to the question, our Q2 looking. I think from today's perspective, Q2 is getting a little better but not coming back to the ratio we have seen in Q4, for example. But we hope that with the change in our revenue mix during the rest of the year, what we plan. We will get back to the high gross margin that we have seen in Q4 2020, for example.

But as we said in the earnings call for the full-year 2020, we will give [Inaudible] on the earnings and on the gross margin EBITDA in the call of the second quarter. Does it answer your question?

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

Yes, yes. That's helpful. Thank you. And then just circling back here again to my question.

Your comment about having some equipment technical issues maybe for the plants in Germany, is that -- have you produced, with your relationship with Corning anything on the cold form side yet? And maybe help us understand the nature of the technical issues and how easy they are to be ironed out and whether or not this holds back some of the design wins you're hoping to have related to cold form.

Juergen Eichner -- Chief Executive Officer

No, it doesn't hold up any design wins we have cold form. I mean I don't know whether we have mentioned that before, but I think we are the only company in the world having cold form products already in production -- in mass production. So that doesn't impact us. The technical difficulties are more related to we had to bring the equipment over from China.

The Chinese manufacturer has actually has to adjust it to the European standard. So they had some -- well, let's say, difficulties to adjust. So they have to do right now some rewiring and things like that. So it's not -- I mean, it's -- I'm not so happy about that because we wanted to ramp up earlier, but luckily it doesn't impact us, not in our overall capacity nor does it impact us in any way in terms of acquiring new projects or something.

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

OK. That sounds good. And then my last question related to your comments in your prepared remarks, talking about with the North American EV maker new surround camera system win. Can you give us a sense of when you might start producing for that? And is it for one socket or multiple sockets in the vehicles?

Juergen Eichner -- Chief Executive Officer

So this one is for -- so it's -- so we have -- the surround view is basically for cameras, right, and this is for one vehicle right now. And we -- so this is -- we expect -- so according to the customer, they want to start production end of the year, which sounds a bit early to me, but we will be happy if we -- if that works out. So it's a very short design cycle. It will be good if it works out this year, but I'm not planning for it.

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

Got it. Perfect. Thanks, guys. Best of luck.

Juergen Eichner -- Chief Executive Officer

Maybe one word also to the semiconductor shortage. If you would have asked me three months ago, I would have said we have not been impacted. So right now, we have been impacted with -- mainly with cost increases. And it takes just a while to basically negotiate with the customer to adjust the price, so -- and this is you -- this is why Daniel said it takes a little while.

So it's not that the customers don't want it. Of course, nobody wants higher cost, but it's not that they are not willing to adjust.

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

Thank you.

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 about a little bit more about some of the customer wins. How many of these are new relative to last quarter? I believe you said in EV, there's 10 customers.

You have wins on numerous models. Can you kind of update us what's changed versus last quarter? Like maybe you can in order of magnitude, what are the size of these new wins? Are they big projects or small and medium? Anything you can -- any color you can give us would be great.

Juergen Eichner -- Chief Executive Officer

So all of these wins are, I would say, significant. Camera opportunities are usually a little bit less but whenever you talk about cold form, it's usually a significant design win. If you look over the last -- so in average, I would say, since last year, you can say, in average, you have one design win group per quarter roughly in this market. This is what we see doesn't say that it has to be one for the quarter but this is what we're currently seeing as the rate.

Most important is, for me, that these design wins are also with new customers, and they have more projects. And this is an incubation project for us. So it's a design win, yes. But it's also an incubation project to this customer and to get more business.

For example, the one in China, this is right now where we are in the high end car. If that is successful, then we would get the mid-range as well. The mid-range is a significant higher quantity. So these are all for us.

They are nice projects, but they are also door openers.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. And for the most part, you expect production on these to begin before year-end?

Juergen Eichner -- Chief Executive Officer

That on -- to be honest, on this one, on the recent one -- the recent cold form, I think it's next year. I need to check that but I think it's next year.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Yes, go ahead. Sorry. No, go ahead. Sorry.

Juergen Eichner -- Chief Executive Officer

The other one that I mentioned, so starting to be high end going into the mid-end, this will follow shortly after. So that's probably be also on next year.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. So you got -- your 2021 guidance isn't contingent upon these reaching production yet?

Juergen Eichner -- Chief Executive Officer

No, no. They have not been included in the 2021 guidance yet to that extent.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. Got it. Can you talk about -- is there -- in terms of you guys touched on M&A. That's an area you'd like to allocate some capital to.

Has anything changed versus last quarter in terms of your outlook there or now that the pandemic is kind of relieving?

Juergen Eichner -- Chief Executive Officer

No. The only thing which has changed is that we wanted to close it this quarter and -- sorry, last quarter and now we are closing in this quarter. So you will hear about it in the next earnings call. We are very close to closing it.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. And can you comment on the kind of the nature of the -- of the potential acquisition? Is it small, large or anything you can indicate?

Juergen Eichner -- Chief Executive Officer

It's a smaller acquisition. It's basically -- we are looking more into -- basically, how should I say that, to have a systems integration company. So as the products that we are bringing in the displays, the cameras and so on and so forth, they have to interact with the automotive electronic system. So you have to have interfaces, you have to provide software, you have to provide user interfaces.

And also, upfront, you might be required to integrate part of what you have, not the final products, but part of what you have in the car to test it in the car. So -- and this is the kind of company we are acquiring. And it's a well-established company, especially here in South of Germany with some carmakers there, which may give you an idea.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. And lastly, I just want to clarify with the large EV -- U.S. EV project that you -- we thought would have commenced by now, it sounds like that's more Q3. That's more on that EV maker.

I was a bit confused about the nature of the delays. Is it the EV maker that kind of delaying things, or is it more around on your end?

Juergen Eichner -- Chief Executive Officer

There were delays in the EV maker because the -- I don't know if you read the news. You probably know that there were some other parts of the car not ready. So they were missing parts, so they're actually delayed a little bit. And the -- what we are seeing right now is really -- it's really the -- it's the integration part of the equipment.

So the overall -- and we also see a lot of changes in the -- we have seen a lot of changes in the development process. We still see changes going on. Actually, to be honest, we are already working on the next design with them already. So this is not to get fully in production but we're already working on the next generation.

We've been asked to provide already samples and demos for two other lines that they have. So this is actually pretty very well progressing. It absorbs a lot, a lot of people and manpower, and this is why we are continuously hiring faste, faster than expected. Luckily, right now, we get people.

It was a lot -- I don't know why, but it was a lot harder last year. This year it seems easier. I don't know why.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. Interesting. Yes. So presumably, it is all temporary, yes.

The delays are temporary. It seems like the long-term outlook, this customer is still very strong and nothing has changed. The fact that -- if anything, things are changing for the better, long term.

Juergen Eichner -- Chief Executive Officer

No, it's all good, and it's actually -- what's happening right now, we're getting -- at the beginning was discussions about new models. And now we are talking about the model. So we know what models they are, we are providing samples. I mentioned initially that we see a lot of demand in OLED.

So this is also related to that. It's at the end of the day, the opportunity becomes bigger and bigger. And actually, to be honest, also very exciting right now because it's a different kind of -- I mean OLEDs are not that common in the car and this is something, which will obtain, from my point of view -- actually, I've seen samples that would be [Audio gap]

Duration: 33 minutes

Call participants:

Cassidy Fuller -- Investor Relations

Juergen Eichner -- Chief Executive Officer

Daniel Juergens -- Chief Financial Officer

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

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

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