Richard W. Blickman, President and Chief Executive Officer of Besi, commented:
"This year marked an important inflection point in our strategic development as we position Besi for sustainable growth over the next decade. Our business model generated revenue and profitability levels substantially higher than our peers as we effectively responded to an assembly equipment downturn which began in the spring following large capacity additions over the past two years.
"We also made a number of important R&D and business investments in 2022 to better position ourselves for anticipated growth over the next industry cycle. Development spending was increased by 48% to ramp hybrid bonding for commercial production, to introduce two new wafer level assembly systems and to upgrade our existing product portfolio. Operational resources were utilized to increase cleanroom production and service/support capacity in Malaysia and Singapore as we prepare for anticipated hybrid bonding growth over the next five years. Strong cash flow from operations was used to increase our capital allocation by 132% versus 2021 including the initiation of a new € 300 million share repurchase program. Progress also continued on Besi’s ESG agenda where approximately 80% of our 2022 targets were met or significantly exceeded in key carbon emissions categories as well as in the areas of waste, hazardous materials and renewable energy.
"For the year, revenue and net income of € 722.9 million and € 240.6 million declined by 3.5% and 14.8%, respectively, versus 2021. Orders of € 663.7 million declined by 29.3% principally due to decreased demand for high-end smartphone applications post new product introductions in 2021. The decrease also reflected reduced bookings from Chinese subcontractors for mobile and mainstream computing applications linked to softening economic conditions in China. Of note, revenue from Chinese customers declined by 33.5% and represented 25.9% of revenue in 2022 versus 37.6% in 2021. Revenue and order weakness in smartphone applications was partially offset by continued strength in Besi’s computing/hybrid bonding and automotive end-user markets as well as increased revenue from spares/service activities which grew by 25.7% year over year.
"We achieved peer leading operating and net margins of 40.7% and 33.3% in a difficult environment as we successfully aligned production to changing market conditions. In fact, gross margins increased to 61.3% this year due primarily to a 77% reduction of temporary headcount from peak first quarter levels, effective management of our supply chain and price increases implemented to help offset inflationary cost pressures.
"Besi ended the year with a solid liquidity base consisting of cash, cash equivalents and deposits aggregating € 671.7 million, or € 8.56 per basic share and net cash of € 346.5 million. Our net cash position reflected strong cash flow from operations of € 271.9 million equal to 37.6% of revenue, the conversion into equity of € 139.9 million of Convertible Notes due 2027 and the capital allocation of € 416.3 million to shareholders. Given Besi’s earnings, cash flow and solid financial position, we propose to pay a cash dividend of € 2.85 per share for approval at our 2023 AGM. The proposed distribution is the thirteenth consecutive annual dividend paid and reflects a pay-out ratio of 93%. Including such dividend, Besi will have returned approximately € 1.6 billion to shareholders over the past 13 years, or approximately 25% of cumulative revenue during this period.
"In addition, substantial progress was achieved to help hybrid bonding become a market reality. Significant improvements in placement accuracy, throughput, yield and lead times for delivery all contributed to its commercial viability. Full scale production by a customer began in the second half of 2022. In total, Besi has shipped 35 hybrid bonding systems since the fourth quarter of 2021 of which 10 were demonstration units. In addition, we received orders for an incremental 14 units from multiple customers subsequent to Q3-22 of which 3 were received to date in Q1-23. Orders received in Q4-22 are not anticipated to be shipped until Q2-23 of which several are to be incorporated into integrated hybrid bonding production lines. Of note, the first hybrid bonding integrated production line was shipped in the fourth quarter.
"Besi’s fourth quarter operating results were better than expected in an ongoing industry downturn. Revenue of € 137.7 million decreased by 18.4% versus Q3-22 reflecting a number of headwinds including weakness in high performance computing and mainstream electronics applications and ongoing weakness in mobile end-user markets. However, our backlog rose by 12.2% to reach € 270 million at year-end due to a € 55.2 million, or 44.1% sequential order increase versus Q3-22. Such increase resulted primarily from higher bookings for high-end smartphones and hybrid bonding systems. Current order trends reflect customers’ continued investment in high-end versus mainstream assembly applications as well as ongoing weakness in demand by Chinese customers. Besi’s profitability and efficiency remained at attractive levels in Q4-22 despite the downturn with gross margins reaching 62.3%, net income of € 40.2 million and a net margin realized of 29.2%.
"There is a high degree of uncertainty as to the outlook for 2023. The assembly equipment market is in a classic downturn after two strong years of growth. However, we believe there are a variety of potential outcomes for Besi’s business prospects this year in the context of the current downcycle including the outlook for smartphone and hybrid bonding demand as well as the impact of the re-opening of the Chinese economy. The headwinds we face are many including higher inflation and interest rates, decelerating economic growth, geo-political tensions and ongoing weakness in mainstream electronics, computing and mobile handset end-user markets.
"For Q1-23, we forecast that revenue will decrease by 0-10% versus Q4-22 as many orders received in Q4-22 are scheduled for delivery in Q2-23 and Q3-23. In addition, we estimate that Besi’s gross margin will range between 61%-63% and for baseline operating expenses to decrease by 0-5% versus Q4-22. Total operating expenses are expected to increase by 15%-20% due to an incremental € 7 million of non-cash, share based compensation expense.”
Fourth Quarter Results of Operations
| € millions | Q4-2022 | Q3-2022 | Δ | Q4-2021 | Δ | ||
| Revenue | 137.7 | 168.8 | -18.4 | % | 171.7 | -19.8 | % |
| Orders | 180.5 | 125.3 | +44.1 | % | 202.6 | -10.9 | % |
| Book to Bill Ratio | 1.3x | 0.7x | +0.6 | 1.2x | +0.1 | ||
Q4-22 revenue of € 137.7 million decreased by 18.4% versus Q3-22 and 19.8% versus Q4-21 due primarily to lower shipments for high performance computing, reduced revenue from Asian subcontractors for mainstream electronics applications and ongoing weakness in mobile end-user markets. The Q4-22 revenue decrease versus each of such periods also reflected general market softness and was partially offset by continued strength in shipments for automotive applications.
