ams reports significant third quarter revenue growth in expected range with adjusted EBIT margin above expectations; major consumer ramps continuing at high volumes for very strong expected fourth quarter growth with expected revenues of EUR 440-480 million and adjusted EBIT margin of 26-29%; new independent software services company to accelerate software development for ams sensor solutions
Key financial data for third quarter 2017
Premstaetten, Austria (23 October 2017) - ams (SIX: AMS), a leading worldwide supplier of high-performance performance sensor solutions, reports significant third quarter 2017 revenue growth in the guidance range and adjusted EBIT margin above expectations. As important optical solution ramps in ams’ consumer business continue at high volumes, ams expects very strong quarter-on-quarter growth with fourth quarter revenues of EUR 440-480 million, together with an adjusted EBIT margin of 26-29%.
Third quarter group revenues were EUR 262.6 million (EUR 266.3 million based on the guidance EUR/USD exchange rate of 1.16), up 45% sequentially compared to the second quarter and up 79% from EUR 146.7 million in the same quarter 2016. On a constant currency basis, third quarter revenues were 87% higher compared to the third quarter last year.
In the third quarter, adjusted gross margin (excluding acquisition-related and share-based compensation costs) was 41% while IFRS reported gross margin (including acquisition-related and share-based compensation costs) stood at 37%, compared to 55% and 53% respectively in the same quarter 2016.
The adjusted result from operations (EBIT) (excluding acquisition-related and share-based compensation costs) for the third quarter was EUR 34.8 million or 13% of revenues which was above previous expectations, increasing from EUR 28.0 million in the same period 2016. The IFRS reported result from operations (EBIT) (including acquisition-related and share-based compensation costs) was EUR 10.5 million or 4% of revenues, decreasing from EUR 49.7 million in the same period 2016. The positive quarter-on-quarter development was due to increasing utilization of the expanded capacity in ams’ optical sensing business starting in the second half of the quarter.
The net result for the third quarter was EUR 20.2 million compared to EUR 55.9 million in the same period last year. Basic and diluted earnings per share were CHF 0.28/0.27 or EUR 0.24/0.23 based on 83,390,747/86,716,951 shares (basic/diluted; weighted average) compared to CHF 0.91/0.88 or EUR 0.84/0.81 for the third quarter 2016 based on 66,860,524/69,171,109 shares (basic/diluted; weighted average).
Operating cash flow for the third quarter was EUR -32.4 million compared to EUR 45.2 million in the same quarter last year. Total backlog on September 30, 2017 (excluding consignment stock agreements) was EUR 440.4 million compared to EUR 211.0 million at the end of the second quarter and EUR 132.2 million on September 30, 2016, today’s total backlog exceeds EUR 500 million.
ams’ business grew substantially in the third quarter of 2017 led by a sharp revenue increase in its consumer business in combination with overall positive demand for ams’ advanced sensing solutions. New product introductions drove this revenue expansion despite a negative influence from the EUR/USD exchange rate development in the quarter while all end markets offered healthy contributions to ams’ business performance.
ams’ consumer and communications business recorded strong growth in the third quarter as anticipated. ams is implementing the expected steep ramps of new optical solutions for a recently launched global platform by a leading smartphone OEM following the start of high volume shipments in the second half of the quarter. ams’ optical sensing business is at the center of these ramps and contributing even more significantly to ams’ overall business performance. Quickly moving to very high run rates, ams focuses on successfully continuing these complex ramps in its expanded manufacturing operations in Singapore and, to a lesser extent, Austria. As a consequence, ams’ optical sensing portfolio spanning 3D sensing, spectral sensing, TrueColor and color/RGB ambient light sensing, proximity sensing and multi-function modules has become the core growth driver for the company while our audio business continued to perform well in the third quarter. ams’ multi-year product and development pipeline is driven by major consumer OEMs exploring new sensing possibilities for future devices which ams expects to translate into substantially higher content opportunities for the company in the coming years.
ams is successfully integrating its Princeton Optronics VCSEL business into its R&D framework and is pursuing new technical approaches to drive real innovation in infrared illumination for consumer applications. The previously announced investment into internal VCSEL manufacturing capacity is moving ahead with capital expenditure starting in the fourth quarter 2017.
To accelerate the development of dedicated software IP for ams’ optical, imaging, environmental and audio sensor solutions including optical 3D and spectral sensing, ams has initiated the formation an independent software services and licensing company which will work primarily with ams and its customers. Starting from locations in Europe, the company plans to open additional locations in the US and Asia in 2018. This novel approach creates an autonomous software-centric environment that will be able to attract top quality entrepreneurial and creative talent in the software industry, which will then develop differentiating application solutions for ams sensors. ams has agreed to acquire a 30% shareholding in the company in the first quarter of 2018 at a pre-agreed valuation and has the option to fully acquire the company at a later point in time. The company will help ams quickly expand its software portfolio with proprietary IP, especially for optical 3D and spectral sensing, and also work with ams’ customers to realize a faster time-to-market for their devices incorporating ams sensor solutions.
ams’ industrial, medical and automotive businesses continued their attractive performance in the third quarter 2017. The demand environment in these non-consumer end-markets remains healthy for ams in the second half of the year. As expected, ams saw a further positive development of its industrial business which includes the major product areas automation, building technology and industrial imaging. ams’ strong position as a leader in industrial sensing is built on a broad global customer base and a firm grasp of evolving OEM needs. First OEM discussions support ams’ belief that innovative technologies such as 3D sensing will create major growth opportunities in new industrial applications and drive change across sensing markets. ams’ medical business recorded another attractive quarter as the leading provider of imaging sensor solutions for computed tomography (CT), digital X-ray, and mammography. ams continues to ramp a new imaging customer in Asia through the second half while new applications in endoscopy are seeing positive market traction. In ams’ automotive business, good demand for ams’ advanced sensing solutions continued in the third quarter. Supporting applications in safety, driver assistance, position, and chassis control through an expanding range of technologies ams is already starting to evaluate projects in emerging areas such as 3D LIDAR.
In operations, ams has continued to expand manufacturing capacity in Singapore and Austria related to the current high volume ramps of new consumer optical sensing solutions. In order to support additional customer needs with a view towards 2018 ams is implementing further investments in optical back-end manufacturing and optical filter deposition before year-end with total capital expenditures for 2017 expected to reach around EUR 600 million. This includes a first portion of investments for the previously announced VCSEL manufacturing line in Singapore. At the same time, ams expects capital expenditures for 2018 to be lower than the expected total for this year, based on current information.
For the fourth quarter 2017, ams sees very strong quarter-on-quarter growth in its business. Based on available information and a current EUR/USD exchange rate of 1.18, ams expects fourth quarter revenues to show a very substantial increase to EUR 440-480 million, up 68-83% quarter-on-quarter, given the steep ramp of new consumer optical solutions and the high volume production already ongoing. These expectations highlight ams’ strong position in innovative optical sensing technologies including 3D sensing and advanced display management.
The adjusted operating margin for the fourth quarter is expected to show a significant increase to 26-29% (excluding acquisition-based and share-based compensation costs), predominantly driven by increasing capacity utilization in ams’ optical sensing business. Under IFRS rules ams is required to record changes in the value of the option element of the recently issued foreign currency convertible bond that result from changes in the ams share price as non-cash items in the group financial result. To adjust for this accounting treatment, ams will report adjusted net result and earnings per share (EPS) values excluding this effect starting from the fourth quarter.
For completeness, ams reiterates its revenue growth expectation of more than 40% compound annual growth rate (CAGR) for the period 2016-2019 and its adjusted EBIT margin target of 30% from 2019 onwards which are based on ams’ extended revenue and project pipeline.
ams’ third quarter 2017 report including additional financial information is available for download.