Himax Technologies, Inc.

Hello, ladies and gentlemen. Welcome to the Hemix Technologies, Inc., fourth quarter and full year 2021 earnings conference call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session. To ask a question during this session, you will need to press the start and the one key on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark Schwellenberg from MC Group.

Thank you. Welcome, everyone, to Hymax's fourth quarter and full year 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 released, please email HIMX at mzgroup.us, access the press release on financial portals, or download a copy from IMAX's website at www.imax.com.tw. Unless otherwise specified, we will discuss our financials based on non-IFRS measures. You can find the related reconciliation to IFRS on our website. 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 results or events to differ materially from those described in this conference call. These factors include but are not limited to the effect of the COVID-19 pandemic, on the company's business, general business and economic condition, 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 applications products, reliance on a small group of principal customers, continued success in technological innovation, 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 receivable 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 31st, 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 31st. 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 will now turn the call over to Mr. Eric Lee. Eric, the floor is yours.

Thank you, Mark. Thank you, everybody, for joining us. My name is Eric Lee, and I am the Chief IRPR Officer Joining me are Jordan Wu, our CEO, and Jessica Pan, our CFO. On today's call, I would first review the HI-MAS consolidated financial performance of the fourth quarter and full year 2021, followed by the first quarter 2022 outlook. Jordan will then give an update on the status of our business, after which we will take questions. Our first quarter revenue was at the upper end of guidance range, while gross margin and EPS both exceeded the guidance issued on November 4, 2021. The fourth quarter revenues, gross margin, and EPS all reached new records. For year 2021, revenues surpassed $1.5 billion, along with record gross margin and EPS. For the first quarter, we recorded the net revenue of $451.9 million, an increase of 7.4 percent sequentially and an increase of 63.9 percent compared to the same period last year. Gross margin was 51.8 percent, an increase from the already high level of 51.7 percent in the third quarter, and above our guidance of around 50 percent. Now, IFI's profit per diluted ABS was 84.9 cents, exceeding the estimates of 78 cents to 83 cents. IFI's profit per diluted ABS was 81.5 cents, higher than guidance range of 74.5 cents to 79.5 cents. Revenue from large district driver was $125 million in Q4, up 6.3% sequentially and a near double year over year. Monitor revenue came in better than expected, up more than 30% sequentially ahead of our prior guidance of a more than 20% increase due to accelerated orders for high-end monitors from certain end customers. Notebook sales continued strong growth momentum, delivering double-digit sequential growth as a result of strong shipment of high-end products toward leading notebook vendors. As expected, the fourth quarter TVIC revenue was down single-digit sequentially on the backdrop of sluggish global TV market. In some cases, where TV customers who borne shipment liability to us and suffered business headwinds, under mutual consent, we redirected their allocated foundry capacity towards IT displays where demand stays strong. It was through such efficient operating execution that we were able to achieve sales growth for the large display driver business despite the slow TB market and further reinforce the business relationship with strategic customers. Large panel driver IEC accounted for 27.7% of total revenues for the quarter, compared to 27.9% in the third quarter of 2021 and 23.3% a year ago. Small and medium-sized display drivers saw resilient sales with revenue of $276.6 million, up 9.6% sequentially and up more than 50% year-over-year. The automotive segment has repeatedly been the fattest growing sector among our small and medium-sized display driver segment, with sales up more than 20% sequentially this quarter. It's worth highlighting that the e-paper business Another product in our small and media-sized driver lineup and one of the decent margins enjoyed more than 80% sequential growth in Q4. Small and media-sized driver IC segment accounted for 61.2% of total sales of our quarter, compared to 59.9% in the previous quarter and 64.5% a year ago. In Q4, smartphone, tablet, and automotive driver businesses contributed about the same sales with automotive significantly outgrowing the other two segments, a trend that we believe will continue over the next few years. The fourth quarter smartphone sales reached $91.3 million, up double-digit sequentially and up more than 3% compared to the same period last year, due mainly to high assurance to key customers despite the outbreak of COVID-19 variants weighing down the worldwide smartphone market. The smartphone segment represented around 20% of our total sales in Q4. Our supply for smartphones was still limited by the total capacity accessible to us, where we could only support shipment to select end customers. Amidst a slow tablet market, our tablet revenue reached $85.8 million, a decline of single digits sequentially, but up around 30% year over year. The decline was caused by shrinking traditional DDIC shipments acquired TDDI sales were slightly better than record level in Q3 and represented the eighth consecutive quarter of growth since initial production from the first quarter of 2020. We maintained our leading market share position in the non-IOS tablet market with accelerated TDDI penetration among leading main brands. Template revenue in the quarter accounted for 19% of total sales. Our first quarter revenue for automotive set another record amounting to $89.1 million, up more than 20% sequentially and up more than 130% year-over-year. Thanks to our strong shipment in high-end DDIC product, rising TDDI shipment, as well as market share gains across numerous automotive customers. As panel inside vehicle continue to grow in quantity, size, and include more advanced features, we expect to see sustainable, robust growth in our automotive business. Fourth quarter revenue from our non-driver business was $50.3 million, slightly down sequentially and up around 50% year over year. We are pleased to report that our ultra-low power AI image sensing total solution successfully entered into mass production in Q4 last year for a major tech name over a mainstream application. We reached this major milestone just one year after we delivered the first samples, a remarkable achievement and illustration of the robustness of our AI solution. CMOS image sensor sales were up mid-teens, while IT comm business decreased by low teens sequentially as a result of slow demand in TV and Chromebook. However, On a year-over-year basis, T-Con sales were up more than 70%, a reflection of our leading position across 4K, 8K TV, gaming monitor, and the low-power notebook. Non-driver products in Q4 accounted for 11.1% of total revenues. as compared to 12.2% in the third quarter of 2021 and 12.2% a year ago. Now, IFIS growth margin for the fourth quarter subsided at high level of 51.8%, a continuation from 51.7% of last quarter and a greatly increase from 31.2% of the same period last year. The higher gross margin was the reflection of better mix towards high-end products area and a more favorable IC pricing environment resulting from tight foundry capacity. IFI's gross margin was also 51.8% for the quarter. Our non-IFI's operating expenses for the fourth quarter was $48.5 million, up 9.1% from the previous quarter and up 11.5% from a year ago. The sequential increase was a result of a one-time cash bonus at the end of December to further reward employees for the remarkable financial results, while the year-over-year increase was caused mainly by increased salary. IFIS operating expenses were $56 million for the first quarter, down 18.2% from the preceding quarter, but up 27.9% from a year ago. The difference was mainly due to annual bonus compensation, which we award employees at the end of September each year. Reflecting the higher sales and the better gross margin, the fourth quarter, now IAFI's operating income was $185.5 million, or 41.1% of sales, versus 41.2% of sales in the last quarter. the Q4 operating income reached a historical high. Now, IFI's after-tax profit was $148.4 million, or $0.849 per diluted ADF, a new record high and an increase from $138.9 million, or $0.79.5 per diluted ADF last quarter. Now let's have a quick review on the 2021 four-year financial performance. Revenues totaled $1,547.1 million in 2021, representing 74.4% growth over that of 2020. The ongoing efforts of the pandemic, coupled with the foundry capacity shortage, created a challenging operating environment, yet also provided favorable conditions for IC vendors such as ourselves with overall market demand far outpassing supply. Among our three major product categories, small and medium-sized display drivers posted the highest growth of 86.8% in 2021, with sales totaling $963.5 million. We saw extraordinary business momentum, particularly in tablet and automotive sales in 2021, as leading non-iOS tablet brands all adopted our tablet TTDI solution, and automotive displays continued to evolve at rapid rate in the number, size, and the sophistication. Automotive sales enjoyed the highest growth among all product lines in 2021, up more than 110%. Wired sales for tablet IC, our top sales contributor in 2021, grew 77%. Smartphone and e-paper sales were up more than 85% and 23% respectively in 2021. Revenue for large panel display drivers totaled $397.9 million in 2021, representing annual growth of 65.3%. During the pandemic, the surge in IT demand boosted our notebook display IT sales significantly. up more than 370%, whereas monitor display sales increased more than 30%. TV sales were also up by more than 40% despite the dip in worldwide TV shipment during the second half of the year. Non-driver product sales totaled $185.7 million an increase of 42% from last year. The increase was mainly from TCAM sales, more than double AMIS growing needs for high frame rate and high resolution displays. CMOS image sensor business, severe, kept by capacity constraints throughout the year, was up mid-single digit from the strong demand in notebook and web camera for work from home and online education. This annual sales increase was offset by WLO, wafer-level optics, as the legacy product of a major customer gradually decreased. Now, IFI's gross margin in 2021 was 48.5%, greatly increased from 24.9% in 2020. The increase was mainly a refraction of more favorable IC pricing, and the product mix resulting from the tight foundry capacity, as well as increasing contribution from high margin product lines, especially in automotive, notebook drivers, and the TCOP. Now, IFRS operating expenses were $171.5 million. up $15.2 million, or 9.7%, due to higher salary expenses. And a cash bonus we awarded our employees at the end of December. Despite the anti-dollar appreciation against the U.S. dollar during 2021, the currency fluctuation to high max were of limited impact as our accounting was US dollar denominated, the same as the bulk of our buying and selling activities, thereby creating a new natural hedge. The stronger NT dollar in 2021 did contribute to around $4.6 million of operating expenses increase as we paid the salary of the Taiwan-based employees and much of the Taiwan local incurred expenses in NT dollars. Yet, the non-IFIS operating expenses ratio of 2021 was reduced to 11.1% from 17.6% in 2020, indicating our consistent and prudent management of operating expenses. IFIS operating expenses were $203.6 million, up $40.7 million, or 25%, compared to last year. The increase came mainly from the vested portion of the annual bonus compensation we awarded employees at the end of September each year. Reflecting higher sales and the better gross margin, non-IFIS operating income was $578.3 million, or 37.4% of sales, an increase of $513.7 million from $64.6 million in 2020. For the same reason, but partially offset by increase of annual bonus compensation. IFI's operating income was $545 million, in contrast to $57.9 million in 2020. Our non-IFI net profit for 2021 was $463.6 million, or 265.1 cents per diluted ADS, up $411.2 million from $52.3 million, or 30.2 cents per diluted ADS in 2020. IFI's net profit for the year was $436.9 million, or $249 up $389.8 million from $47.1 million or 27.2 cents per diluted ADF in 2020. The upswing in income was a result of better sales, higher growth margin, along with well-managed operating expenses. Turning to the balance sheet, we had $364.4 million of cash, cash equivalent, and other financial assets of December 31, 2021, compared to $201.4 million at the same time last year and $250.8 million a quarter ago. The higher cash balance, was mainly from $182.2 million of operating cash inflow during the quarter and the payment received from customers for the purpose of securing their long-term chip supply, partially offset by payment we made in order to secure our long-term foundry capacity. Restricted cash was $154.1 million at the end of Q4. compared to $156.8 million a quarter ago and $104 million a year ago. The restricted cash was mainly used to guarantee the short-term secure borrowings for the same amount. We had $52.5 million of long-term unsecured loans as of end of Q4, of which $6 million was current portion. Our year-end inventory were $198.6 million up from $160.9 million last quarter and up from $108.7 million a year ago. Amidst tight foundry capacity where demand still outpasses supply, we continue to pursue an aggressive inventory buildup strategy. the mass majority of our inventory positions now is comprised of working process goods, while finished goods are promptly shipped as soon as they are available. Accounts receivable at the end of December 2021 was $410.2 million, slightly up from $420 million million last quarter and up from $243.6 million a year ago due to higher sales. DSO was 97 days at the quarter end as compared to 100 days both a year ago and from last quarter. Fourth quarter capital expenditure were $2 million. versus 2.1 million last quarter and $0.8 million a year ago. The fourth quarter CAPEX was mainly for R&D-related equipment and in-house testing of our IT design business. Total capital expenditure for the year was worth $7.6 million, mainly for design tools, R&D-related equipment, as well as in-house tester of our IT design business, as compared to $5.8 million in 2020. As of December 31st, 2021, HyMEX had 174.3 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the fourth quarter was 174.8 million. Now turning to our first quarter 2022 guidance. Coming off of the record revenue result from Q4 2021, we expect first quarter revenue to decline 5% to 9% sequentially, yet still better than off-season sales we typically experience during the lunar new year season with fewer working days. The guided range implies a year-over-year increase of 33% to 39% in revenues. Now IFIS growth margin is expected to be around 46% to 48%, depending on the final product mix. Now IFIS profit attributable to shareholders is expected to be in the range of $0.67 to $0.73 per fully diluted ADS, down 21% to 14% sequentially, but up 74% to 90% year over year. IFRS profit attributable to shareholders is estimated to be in the range of 63.5 to 69.5 cents per fully diluted area. I would now like to turn the call over to Jordan. Jordan, the floor is yours.