Ensilica (LSE:ENSI) — Half Year Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the ENSILICA PLC Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish your responses where it's appropriate to do so on the Investor Meet company platform.

0:30 Before we begin, we would just like to submit the following poll. I would now like to hand you over to the executive management team from ENSILICA PLC. Ian, good afternoon, sir. Good afternoon. Thanks, everyone, for joining us. I'm Ian Lancashire, CEO, and, this is Christoph Ratherman, our chief financial officer. Yeah. Today, we're we're going through our interim results for the, period ending the 11/30/2020, '25. So just the, the usual forward looking disclaimer. Please read that at your leisure. And, so talk to again, to take you through, think it's, you know, ENSILICA is a very different company from the one that IPO ed in 2001.

1:17 We've both got more scale, larger larger engineering team able to take on more chips in parallel. We've got a stronger IP portfolio and positions in a you know, positioning, you know, us better in our target markets. And, you know, in terms of suppliers, we're now direct with all the major foundries, including TSMC, which has taken a long time to gain that position. And we've got very strong customers, and you would have seen the RNS that went out today talking about the the Siemens chip tape out. So, we have we've got real you know, a real quality customer base. We've we've got increased focus on our markets, the communication one, and particularly the space side, and I've I've got more slides on on that later covering our progress in that area in that area.

2:13 And automotive and, you know, we've also got the automotive and industrial markets, you know, where where we have a strong pipeline in that as well. Yeah. The the the business model is is is working. You'll you'll see from the presentation that the reoccurring revenue and cash cash generation coming from the chip suppliers, you know, is coming through, and there's a a clear path now to to profit to profitability.

2:46 So we've we've got five ASICs now in the the production phase, and I'll yeah. I'll show an illustration of that later as well as, you know, a broad portfolio of of chips, which are in the design phase. I mean, some of that in is in terms of we, you know, we we we've take out production silicon. Some of that is we we actually have prototypes that what what they call the MPW mass multi project wafer phase. But, you know, we we've up a whole series of them coming through. Yeah. A notable one is a roll tolling ASIC where we're, you know, we're we're in the process of, taking out a test chip for, for that.

3:32 We've got great traction in the, the space sector, and I'll I'll cover that cover that later, you know, particularly around the payload and the user terminal side. So that's a really exciting exciting area. One one of the other key areas is is that around security, cybersecurity in chips. There's lots of new legislation coming through, and we have a strong position where we've developed our own post quantum IP, and we'd we have a contract in place now with with the UK government to develop a secure processor chip for critical national infrastructure applications, as well as developing a standard part we can sell out to that project. It generates very strong core IP we can use across our portfolio of chips because all chips now that, you know, the markets that we're targeting need need that strong strong security.

4:29 We've we've demonstrated our ability to, you know, full scale production by shipping 10,000,000 ASICs on an automotive program we were running. I mean, we announced the 5,000,000 ASIC mark in

4:45 in '24. So, yeah, within within just over a year, you know, we've shipped 5,000,000 of those. So, I mean, we really demonstrated there that our operations team and the supply chain is is working and able to able to scale. And, you know, due to demand, we've, you know, design demand. We've opened an office in in Budapest, which gives us a strong foothold in the the the EU, and that that team have good mixed signal ASIC experience, which is ideal for the automotive and industrial applications. I'll now hand over to Christophe, who will talk you through some of the numbers.

5:33 Good afternoon. ENSILICA is very pleased to present our first half financial results for 2026. We achieved record revenues up 37% to $12,700,000 That's our highest first half revenues ever achieved, and we're very, very happy with that result. This was driven by further supply revenue growth. As you know, last year, our supply revenues doubled from the year before, and we expect further growth this year. We were also helped by large NRE revenue growth from our contracted customers from those development contracts, which were signed last year. Gross margins in the first half, slightly up on the previous year, and this is due to the increase in supply revenues, which is at a higher margin than our our normal development and consultancy revenues.

6:31 The company benefited from other income the RDEC's tax credit included in other income, which is a change from the prior year, which was due to the change in the RDEC tax regime. We also achieved EBITDA of 1,700,000 in the first half, which is an increase of $1,900,000 on the prior year, which we're very pleased with, and we expect to generate further EBITDA growth in the second half of the year. Okay. So just looking at the revenue split, as you will see, chip supply is up 34% or another million, which we're very pleased with, and we expect further further chip supply growth in the second half of the year and and and to maintain that that 30 to 40% year on year increase that we've achieved thus far. We also expect chip supply to to further increase in in the outer years 2027 and beyond.

7:39 NRE revenues have increased significantly due to the the the the five contracts which we signed in the prior year and are being developed towards tape out and future supply.

7:54 As as you will have seen, there was a there was a a tape out of a a Siemens ASIC announced this morning through RNS REACH, which we are also very pleased with. Consultancy revenues down on the on the prior year, but that was largely because of the large increase in NRE revenues, meaning that during this period, there was a bigger focus by the business on the NRE, and some of our staff were were pulled into the the NRE development contract as they are able to work across the different the different projects and areas. Thank you. So just pulling out some key balance sheet items.

8:41 Intangible assets increased by 3,100,000. This is our co development in in customer assets, the the ASICs that will generate future supply revenues, and this was then all offset by amortization of 900,000. The amortization is increasing as our chip supply revenues increase and we amortize those related intangible assets. Cash remained stable at GBP 2,000,000, and I'll talk about that in more detail on the next slide. And our external loans decreased due to the repayment of the term loan, which is taking place over three years. Moving on to cash flow. 1,700,000 of EBITDA achieved, and and then working capital, a positive inflow of 2,700,000, which was helped by both our increased supply revenues and then also customer upfront development contracts on on those those contracts that that were won during the year and also the year before.

9:52 Intangibles and CapEx investment, that's largely the 3,100,000 investment in in ASICs together with our customers, which is driving that that increase. And then interest paid down from 500,000 to 300,000. In the prior prior period, we had a very large refinancing charge, which didn't recur this year as we refinanced to lower lower interest loans with Lloyd's Bank. That resulted in cash generation of 800,000, and then that was offset by net proceeds from financing, which consisted mainly of the loan repayment of 500,000 and the lease liability repayment of 0.3, leading to a stable cash position across the the six months, which we are also very pleased with the result.

10:50 Thank you. Okay. Thanks thanks, Christoph. Okay. So so this this slide illustrates how our projects are moving through. You see the the top five there where we've got five in production generating that reoccurring, that reoccurring revenue. And, I mean, all of those five have really not hit their peak, you know, peak volumes, peak revenues. And then we have a series of other ones, you know, marching through the the design phase. So with the, you know, number six here is the Siemens one where we just got to the tape out phase, and actually, that's gonna have an accelerated, you know, time through to to to production this time this time next year.

11:40 Those those ones here you see with an asterisk by them on the on the space sector. They're what you call ASSPs, application specific standard parts. They're chips where we we are free to sell them to to any customer where the the the other ones are ASICs application specific integrated circuits where we, you know, where we just sell them to one particular customer, their their their their specific

12:10 chip. So, yeah, we we aim to win three to four contracts a year. I mean, actually, this this illustration here is basically taking the forecast revenues from these chips with very conservative amounts from these space ASSPs and overlaying them on, you know, our our customer forecast showing, providing an illustration of how it moves. As you as you see there, you know, our our NRE and design efforts so that, you know, about designing the chips, that remains relatively, you know, relatively fixed just with a smaller, you know, small 10% increase increase per year. But what really what what we really see here is the the supply revenue in the blue there on the right increasing as those chips move into the supply and start generating the the reoccurring revenue. And as say, I I I, you know, I feel we've taken a, you know, conservative approach here, certainly those space ASSPs, you know, sort of post post FY 2829.

13:15 I mean, they could certainly show a considerable increase to what what what we're illustrating here in terms of their their potential. And now I mean, that will lead me into to talking about the space sector. You know, very exciting sector. You know, there there's a lot of companies out there that are developing new, you know, new constellations. Everyone's heard of Starlink, but there's the you know, there's other ones there, the Irish two, which is the European one, ENSI that recently acquired, you know, OneWeb, and there's other ones from ViaSat, s SES, etcetera. And it was only a couple of weeks ago that Blue Origin, who are probably more more famous for for their rockets, you know, announced that they were pushing up their own satellite communications constellation.

14:04 So lots of activity, lots of investment going there, lots of growth. And, you know, the space sector requires chips. I mean, chips in the satellites to make them higher performance, lower power, you know, helps reduce the number of satellites, helps reduce the launch the launch costs. So, you know, there there's a lot of investment that goes on using the latest technology in those those chips. So we're we're active in two areas in in the the space sector. One is the payload. These are the chips that go into the the satellites, particularly beamformer chips. You know, we we've previously announced that we would do we we were contracted to do the the the payload chip for AST space space mobile, but, you know, we've got quite a a position here of expertise.

15:04 We're you know, now we're working with other operators and satellite manufacturers in terms of developing payload pay payload ASICs. We're certainly recognized as a world, you know, world leader in this in this area. The the sort of dynamics of these these types of projects, larger large NREs, lower volumes, and that would be to, you know, lead to, you know, good margin supply supply revenue from selling those chips. And in in some cases, we've negotiated a royalty or service based revenue where where we we we basically get you know, for every satellite that uses our chip, we get a revenue we we we we get a revenue stream per per month.

15:51 So that really sort of demonstrates the the value we bring to this to to this particular class of chip and sector. And the other, you know, exciting area is the the user terminals where we're developing ASSPs, and we've had some very good backing from the European Space Agency and the UK Space Agency in terms of providing us funding to develop a s p SP chipsets in this area. We're we're one of the the the only provider that is is actually focused on developing a full a a full chipset. So that includes RF beamformers, mixers, digital beamformers, modems.

16:37 So, you know, our our

16:41 aim here is to develop those, the full suite of chips that you need in one of the user terminals. We already have four chip sampling with, with, with customers with further devices in, in in development. And we have a number of funded engagements with user terminal manufacturers and satellite operators who are evaluating

17:05 our our chips in funded in in engagements as in they're funding us to to support them. So we're we're working with we're also working with multi multiple user terminal OEMs in terms of their responding to operators' RFIs, you know, using our using our chipsets. So we have very exciting area. You know, lot of potential of future revenues when future very high revenues when those when those constellations get get launched.

17:42 So just coming to our outlook, the company feels very positive about the rest of the year and also the future with 95% of revenues contracted for the full year revenues. We feel confident that we will be able to achieve the 28,000,000 to $30,000,000 of revenues that we forecast and the 3,500,000 to 4,500,000 EBITDA that we forecast. Look looking out beyond 2026 with with 250,000,000 of of lifetime supply revenues, which are underpinned by contracts with customers, we feel very, very positive about the the longer term prospects of the company. We also have approximately 400,000,000 of of sales opportunities in our pipeline of which we expect to to to win some of these probably

18:37 25% to to 30% over over the next the next few months. So so the future is is looking positive for ENSILICA. We're also seeing that due to the increase in chip supply revenues and also the the the the strong upfronts we're seeing from our our customers, the cash burn is starting to decrease, and and we are looking forward and feeling positive about starting to become cash flow positive on an operational monthly basis towards the end of calendar year 2026. So in in conclusion, the customer is is growing. What the the company is growing, and the future is looking very bright for ENSILICA. Thank you.

19:26 Perfect, guys. If I may just jump back in there. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that have been submitted already, just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can all be accessed via your investor dashboards.

19:50 Guys, as you can see there, we have received a number of questions, and thank you to all of those on the call for taking the time to submit their questions. But if I may just hand back you to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that'd be great. Thank you. So just going through the questions. Starting off, we've had a a few questions from our our customer, AST Space Mobile, who's a Nasdaq listed company and and been doing very well. Unfortunately, we can't comment on the on the the specific activities of the company and how that impacts our our contract with them, but we we we do wish them all the best that they will be successful.

20:41 So next question. With increasing amounts of government money going into defense spending and with your specialist market already in satellites, are there opportunities arising for ENSILICA in this market or other niche areas in defense? Yes. So so certainly, I mean, you know, a lot of the applications in in defense, you know, both you know, defense needs communications, and the other the other area that's, you know, is required is sort of resilient positioning, navigation, and timing. I mean, they're all areas where we have key, you know, key technology, and certainly a lot of the the chips that we've been developing will have a a, you know, a dual use aspect. So I I certainly see, you know, defense as a, you know, a a key, you know, a a key area, particularly on the sort of, you know, dual use aspect.

21:40 Next question. Do you expect to announce any contract wins before the end of financial '26? If yes, how many? We continue to target three to four contracts to be won during the year. Some of them will be announceable, other others not, but that that remains the target of the company, and we feel that we're we're well on our way to achieve this. Next question. How confident are you that Centimeters Micro contract will be revived at some point during this calendar year? At this point, we we we the situation remains the same as when we updated the market previously.

22:27 We remain in negotiations and discussions with the the the customer, but we have taken them taken them out of our our forecast in order to be conservative and haven't haven't yet added them back in. The PQC market is forecast to grow rapidly in Europe by 2030. What role in terms of size do you expect ENSILICA to play in this market, and will it be a growth engine for the company? Okay. Very good very good question. Just just for people that are p PQC is post quantum cryptography, and that's cryptography which is, you know, developed to be resistant to attack from quantum from quantum computers.

23:15 And and, I mean, this is an area we've developed the IP. I mean, in my my one of my slides, I I talked about what we were doing with cyber resilient chips, and we you know, this post quantum IP, we're actually you know, have plans to design it in as well as well as the the contract for the critical national infrastructure chip, which will have post quantum cryptography. You know, we'll be designing this in other chips, including the the satellite comms one and what ones in in other areas. So we see this as, you know, key fundamental IP to help differentiate our our our offering both on the ASIC offering and the a s ASSP offering. A question from Double Bubbler.

24:03 Once again, thank you team in ENSILICA for the continued strong execution and your aspiration for becoming Europe's premier ASIC firm. My only question relates to the Edge AI contract, which appears pivotal for achieving or exceeding the financial year '26 outlook. Can you provide any reassurances or insights to confirm the tape out won't be delayed from H2? We can confirm that at this at this point, the the team remains highly confident that the tape up will occur in the second half and and it the the project is moving closer to tape outs, so positive moves. Germany is planning to increase its military space capabilities, which will include spend on intelligence gathering satellites and sensors.

24:57 Do you have any plans to bid for suitable contracts, and how would you rate your chances of being successful? So I I mean, I covered a question on the, you know, on the on the defense market, and I I mean, you know, Germany traditionally hasn't been one to develop their own chips in defense. They've probably been, you know, more reliant on you on on US chips. I mean, the the French have certainly, you know, one who've done more investment and have more independence on the the semiconductor side. So I I you know, we've got some unique unique expertise. You know, we we see us being able to bid across Europe on these, you know, on these type of contracts, and we're you know, we have a we have an EU footprint. We have an office in in Germany as well with a German sales team. So, yeah, we should we should be in a, you know, a good position for for bidding for these.

25:56 Can you please advise us when you expect the sampling of the satellite user terminal chips to be completed? Okay. So so in terms of the the the user terminal chips, so then we we have customers and, you know, some of them are funding us, some of them are developing themselves prototypes and test platforms for them. And we we, you know, we expect within sort of six to twelve months to, you know, to know whether we, you know, we we've we've got confirmed design slots in in particular constellations. As I said, it's you know, it it is a long game on these. I mean, those constellations are not, you know, really not gonna be launched until late twenty eight, twenty nine is when and then that's where the volumes will the the real volumes will follow.

26:47 Could you provide more details of your technology road map and leading edge developments? Satellite peer Fulphronic makes much comment on its GaN and higher spectrum leadership with EB and W band product development and SSPAs. Is ENSILICA developing similar products to meet future demands? Okay. So, I mean, we're we're developing different types of products related to high high frequency satcom. So Filtronics are focused on the the gate the the link between the satellite and the gateway, which is the connection to the the Internet. We're we're focused on the the the beam former. So in in modern satellites, rather than using a single GAN amplifier in a dish, They actually use a thing called a phased array where you need lots of little transmitters that add up the power. And, I mean, our focus is on developing this, you know, the the the new technology, which could be in form a technology that goes into satellite, which actually replaces these high power these high power amplifiers in for the user link. It's not always replacing it for the for the for the for the gateway link, but, you know, various satellites have different, you know, different topologies.

28:11 So, you know, we're we're not at the moment, we're working up to k Ka band, which is the main band used for the for for the user link, which is up to up to thirty thirty gigs. You know, we yeah. We're developing technology, but, you know, it's it's a different set of technology to fill to to Filtronics solving a different set of satellite problems. Will the current cash balance be sufficient to get you to being cash flow positive? The answer, we believe, is yes. Our cash burn in the second half of of twenty twenty five decreased to 200,000 of cash burn. And and for this six months, it was actually it was actually a cash inflow.

29:02 Therefore, we feel we feel quite positive. Whilst we think there will still be cash burn, we think this will be limited, and and our cash balances will remain positive until we start becoming operationally cash flow positive towards the end of calendar year 2026. Of the 12 chips soon progressing to tape out as mentioned in the latest press release, how many do you forecast to reach tape out in first half and how many in second half? So in in the next six months, we we've obviously just announced the the Siemens tape out, which which occurred in the second half.

29:49 And then, obviously, the edge AI tape out is is is also forecast for for for this for this next half year. And then and then there are probably another another two two Two two by the end of the calendar. The the end of the calendar year. Yeah. Yes. Yeah. So very, very busy time for our for for our team with these tape outs. But but but they're, you know, they're a key a key milestone in the move to to towards production. Has the additional 3,000,000 debt facility been approved? We we have the 3,000,000 accordion facility with with Lloyds Bank. We haven't we haven't gone back to the bank at this point and requested the additional 3,000,000.

30:43 We may in future, but we haven't, at this time, requested access to it. With potential 25, 30% contract wins from 400,000,000, will this be seen in financial year 2026 or future years as revenue growth? In all likelihood, it would be in future years. Most of the the work that we expect to generate in the second half, which is not contracted yet, is is in the is in the discussion or the the contract stage at this point. So that of the 400,000,000 in any wins would would probably go into financial year '27 and beyond, and we would generate the the development revenues over two to three years and the chip supply revenues over seven to ten years thereafter.

31:51 Could you comment on the motivation for opening the Budapest design site and what end markets they are addressing? Okay. I'll I'll I'll pick that one up. So so the motivation, I mean, we we were actually looking for a to set up a design center in in Europe, you know, to to to help with, you know, be shall we say, be more European. And, you know, this we were also looking for a low cost location. So Hungary is, you know, a a, you know, great combination of very, very talented people, well qualified, and and in this case, we picked up an experienced team. This team is particularly focused on automotive industrial type chips that include things like high voltage and and and sensing. So very, very much aligned with the types of chips we're doing in in the automotive and industrial sector. So very, very pleased to to have the team to to have the team on board, and they're really, really contributing well.

33:01 I think those are all the questions. If if there's anyone that that would like to publish a new question, then obviously, we can take that now. Guys, if I may, I'll just jump back in there at this point in time. And thank you very much indeed for being so generous for your time then addressing all of those questions that came in for investors this afternoon. And of course, if there are any further questions that do come through, why it is available to you after the presentation? But, Ian, perhaps before really now, just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great. Okay. Thanks. Thanks very much. Well, I mean, thanks, everyone, for joining us on this presentation, and we, you know, we we have a lot of followers now. And, I mean, I I think, you know, we we've shown with this good first half, you know, performance and the increase in the the supply revenue that the business model, you know, the business model is working, and we're very well positioned to, you know, to capitalize on all of these opportunities in the in the various sectors, particularly the the space sector. So, you know, a very a very exciting time a very exciting time ahead.

34:16 That's great. Ian, Christophe, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of ENSILICA PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.