Himax Technologies, Inc.

Hello, ladies and gentlemen. Welcome to the HIMAX Technologies Incorporated first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Mark Schwellenberg from MV Group. Mark?

Welcome, everyone, to HIMAX's first quarter 2021 earnings call. Joining us from the company are Mr. Jordan Wu, President and Chief Executive Officer, Ms. Jessica Pan, Chief Financial Officer, and Mr. Eric Lee, Chief IRPR Officer. After the company's prepared comments, we have allocated time for questions in a Q&A session. If you have not yet received a copy of today's results release, please email HIMX at mzgroup.us, access the press release on financial portals, or download a copy from HIMX's website at www.himx.com.tw. Before we begin the formal remarks, I'd like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth, are forward-looking statements that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call. Factors that could cause actual events or results to differ materially from those described in this conference call include, but are not limited to, the effect of the COVID-19 pandemic on the company's business, general business and economic conditions, and the state of the semiconductor industry. market acceptance and competitiveness of the driver and non-driver products developed by the company, demand for end-use application products, reliance on a small group of principal customers, the uncertainty of continued success and technological innovations, our ability to develop and protect our intellectual property, pricing pressures, including declines in average selling prices, changes in customer order patterns, changes in estimated full-year effective tax rate, shortage in supply of key components, changes in environmental laws and regulations, changes in export license regulated by Export Administration Regulations, EAR, exchange rate fluctuations, regulatory approvals for further investments in our subsidiaries, our ability to collect accounts receivables and manage inventory and other risks described from time to time in the company's SEC filings, including those risks identified in the section entitled risk factors in its form 20F for the year ended December 31, 2020, filed with the SEC as may be amended. Except for the company's full year of 2020 financials, which were provided in the company's 20F and filed with the SEC on March 31, 2021, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by an independent auditor to which we subject our annual consolidated financial statements and may vary materially from the audited consolidated financial information for the same period. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I would now like to turn the call over to Mr. Eric Li. Eric, the floor is yours.

Thank you, Mark, and thank you, everybody, for joining us. My name is Eric Li, and I am the Chief IRP Officer. Joining me are Zhou Dengwu, our CEO, and Jessica Pan, our CFO. On today's call, I will first review the HMAS consolidated financial performance for the first quarter, 2021, followed by the second quarter, 2021 outlook. Jordan will then give an update on the status of our business, after which we will take questions. We will review our financials on both IFRs and non-IFRs basis. The non-IFR financials It includes share-based compensation and acquisition-related charges. We preannounced the preliminary key financial results for the first quarter of 2021 on April 7 as revenue, gross margin, and the EPS all exceeded the guidance issued on February 4, 2021. Today, our reported results for the revenue, gross margin, and the EPS are all in line with pre-announced results. Revenue, gross margin, and EPS all reached all-time highs in the first quarter of 2021. For the first quarter, we recorded net revenue of $309 million, an increase of 12.1% sequentially, and an increase of 67.4% compared to the same period last year. The 12.1% sequential increase of rambling exceeded our guidance of an increase of around 5% to 10% quarter over quarter, with strong demand across all our major business segments. Gross margin was 40.2%, exceeding guidance of 37% to 38%, and significantly improved from 31.2% of the fourth quarter 2020. IFRS profit per diluted ADS was 38.3 cents, exceeding our guidance of 30 cents to 34 cents. Strong sales and improved gross margin contributed to the better-than-expected earnings result. Non-IFRS profit per diluted ADS was 38.4 cents. exceeding our guidance of 30.1 cents and 34.1 cents. Revenue from large display driver was $69.9 million, up 8.8% sequentially and up 13.9% year-over-year. Notebook revenue increased more than 70% sequentially. driven by unceasing remote working and the distant education demands. TV revenue was also up by around 8% quarter over quarter. Monitor IC sales, however, decreased sequentially due to foundry capacity shortage as we predicted in the last earnings call. Large panel driver RIC accounted for 22.6% of total revenue for this quarter, compared to 23.3% in the first quarter of 2020 and 33.2% a year ago. Small and medium-sized display driver continued to grow in the first quarter and came in faster than expected, with revenue of $204.1 million. up 14.7% sequentially and up 133.3% year-over-year. TDDI for both smartphone and tablet saw robust growth in Q1, a continuation from high base in Q4 last year. For year-over-year perspective, Sales of both smartphone and tablet demonstrated massive growth. For automotive segment, we delivered a decent mid-teen sequential growth amidst a severe capacity shortage in automotive market worldwide. Small and medium-sized segment accounted for 66.1% of total sales for the quarter. compared to 64.5% in the first quarter of 2020 and 47.4% a year ago. Smartphone sales continued growing in the first quarter, with revenue reaching $80.2 million, up 20.6% sequentially, and up 256.4% year-over-year. The smartphone segment represented 26% of our total sales in Q1. Our smartphone TDDI sales increased more than 30% sequentially and up five times compared to the same period last year, indicating strong market demand and our market share gains. Sales of traditional smartphone DDICs continue to decline as expected. As previously mentioned, traditional smartphone DDICs are quickly being replaced by TDDI and AMLA. Our tabloid revenue reached another record high of $73 million in the first quarter. Q1 sales of tabloid drivers grew 8.3% sequentially and were up more than 150% year-over-year. A strong demand for homeworking and online learning continued. The tablet revenue accounted for more than 23% of our total sales in the first quarter. The tablet TTDI revenue increased 10% sequentially. consecutive quarter of growth since its initial mass production in the first quarter of 2020. The sequential growth was due to the associated penetration of our leading tablet TDDi in the Android market, where we are main or sole supplier to major end customers. Remedial of traditional discrete driver IC for tablet increased 5.9% sequentially and grew 58.9% year-over-year in the first quarter. Our first quarter driver IC revenue for automotive amounted to $43.7 million, up 16.4% sequentially and up 44.3% year-over-year. Automotive driver IC business accounted for more than 14% of total revenue in this quarter. Notwithstanding the decent growth, we are still suffering from severe foundry capacity shortage for automotive applications. While the shortage is expected to persist, as indicated in the last earnings call, we do expect to enlarge our shipment quarter by quarter this year. and beyond into next year. Jordan will elaborate on this in a few minutes. First quarter revenue for our non-driver business was $35 million, up 4% sequentially, but down 2% year over year. The sequential increase was mainly due to the increase of WAO shipment to an anchor customer for continuous legacy product demands. as well as more TCAM measurements. The year-over-year decrease was due mainly to the decrease of WLO measurements. However, TCAM and CMOS image sensor segments both registered an impressive year-over-year growth, up by more than 50% and 70%, respectively. Non-driver RIC products accounted for 11.3% of total revenue as compared to 12.2% in the first quarter of 2020 and 19.4% a year ago. Gross margin for the first quarter was 40.2%, up 9 percentage points sequentially and up 17.5 percentage points from the same period last year. As the capacity shortage in the semiconductor industry intensified across boundary packaging and testing. We further optimized our product mix by strategically favoring more high-margin product while pricing our product higher to reflecting rising costs among all product segments. However, on a year-over-year basis, the lead of gross margin was somewhat offset by the decline in WLO shipment, as the legacy product to an anchor customer gradually decreased. Our ISRs operating expenses were $39.5 million in the first quarter, down 9.9% from preceding quarter, but up 5.9% from a year ago. The operating expenses decreased sequentially because of a one-time cash bonus issued to the team in the first quarter 2020. The year-over-year increase was mainly a result of increased salary. Now, IFI's operating expenses for the first quarter were $39.2 million. down 9.9% from the previous quarter and up 6.9% from the same quarter in 2020. Reflecting high sales and better gross margin, IFI's operating income was $84.8 million for the first quarter with operating margin of 27.4%, up from 15.3% entire quarter and up from 2.5% in the same quarter last year. First quarter non-IFI operating income was $85.1 million or 27.5% of sales, higher from $42.5 million or 15.4% of sales last quarter and up from $5.3 million or 2.9% of sales for the same period last year. Both operating income and operating margin reached record highs. IFI's after-tax profit for the first quarter reached a historical high of $66.9 million, or $0.383 per diluted ADS, compared to $34 million, or 19.5 cents per diluted ADS in previous quarter, and $3.3 million, or 1.9 cents per diluted ADS, a year ago. First quarter non-IFIS profit was $67.1 million, or 38.4 cents per diluted ADS, compared to non-IFIS profit of 34.4 $0.2 million or 19.7 cents per diluted ADS last quarter, and an IS-IS profit of $3.8 million or 2.2 cents per diluted ADS for the same period last year. Turning to the balance sheet, we had $245.8 million of cash, cash equivalent, and other financial assets as of March 31, 2021. compared to $126.6 million at the same time last year and $201.4 million a quarter ago. The higher cash balance was derived mainly from $60.3 million of operating cash inflow during the quarter. Restricted cash was $114.8 million at the end of Q1. compared to $104 million a quarter ago and $164 million a year ago. The restricted cash was mainly used to guarantee the short-term secure borrowing for the same amount. We had $57 million of long-term unsecured loans at the end of Q1, of which $6 million was current portion. Our quarter-end inventory as of March 31, 2021, were $114.9 million, up from $108.7 million last quarter and down from $148.4 million a year ago. The year-over-year decrease was a reflection of the severe supply-demand imbalance. To be more precise, the vast majority of our inventory position now is comprised of work-in-progress goods, while finished goods are mostly taken up by customers as soon as they are available to meet the customer's immediate production needs. As highlighted in the last earnings call, given the foundry and the back-end capacity shortage, Our inventory level may still stay at a relative low level in the quarter to come. Accounts receivables at the end of March 2021 was $289.1 million, up from $243.6 million last quarter and up from $186.7 million a year ago due to higher sales. DSO was 84 days at the quarter end. as compared to 92 days a year ago and 100 days at the end of last quarter. Net cash inflow from operating activity for the first quarter amounted to $60.3 million, as compared to an inflow of $67.7 million last quarter and an inflow of $10.6 million for the same period last year. First quarter capital expenditure was $2 million versus $0.8 million last quarter and $3.1 million a year ago. The first quarter CapEx was mainly for R&D-related equipment of our ISD design business. As of March 31, 2021, Hymex has 174.3 million ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding was 174.7 million. Now, turning to our second quarter 2021 guidance. For the second quarter, we expect further revenue growth from the already high level of Q1 2021 in most of our business sectors. Gross margin should see another uptick and could reach another quarterly high. For the second quarter, we expect revenues to increase by 15% to 20% sequentially. Gross margin is expected to be 45.5% to 47.5%, depending on the final program mix. With the increase of both revenue and margin, net profit will increase substantially in second quarter. IFRS profit attributable to shareholders is expected to be in the range of 54 to 60 cents. per fully diluted ADS. Now IFRS profit attributable to shareholders is expected to be in the range of 54.2 to 60.2 cents per fully diluted ADS. I will now turn the call over to Jordan. Jordan, the floor is yours.