Himax Technologies, Inc.

Ladies and gentlemen, welcome to the Hymox Technologies Incorporated First Quarter 2022 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. If you require any further assistance, please press star zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark Schwallenberg from MZ Group.

Thank you, Operator. Welcome, everyone, to HIMAC's first quarter 2022 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 and a Q&A. 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 HyMAX's website at www.hymax.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 events or results to differ materially from those described in this conference call. A list of risk factors can be found in the company's SEC filings. Form 20 after the year ended December 31st, 2021, in the section entitled Risk Factors, as may be amended. Except for the company's full year of 2021 financials, which were provided in the company's 20F and filed with the SEC on March 23rd, 2022. 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 Lee. Eric, the floor is yours.

Thank you, Mark, and thank you, everyone, for joining us. My name is Eric Li, Chief IRPR Officer at Himex. On today's call, I will first review Himex's consolidated financial performance for the first quarter of 2022, followed by our second quarter 2022 outlook. Jordan will then give an update on the status of our business, after which we will take questions. Historically, our quarter sales are seasonally the low point of year due to the Lunar New Year holidays. This year, starting from February, additional factors also weighed in, many new lockdowns in China to contain the spread of Omicron variant and the geographical conflict erupting in Ukraine, both causing major disruption to our supply chain. Despite these additional challenges, Our first quarter revenue, gross margin, and EPS were all in line with the guidance range issued on February 17, 2022. First quarter net revenues of $412.8 million decreased 8.6% sequentially, within our guidance of down 5% to 9%. Yet Q1 sales were up 33.6% on a year-over-year basis. Our gross margin came in at 47%, a decrease from the record high of 51.8% in the first quarter last year. But we've seen our guidance of around 46% to 48%. Now IFIS profit per diluted ADS was 69.7 cents, a mid-range of the guidance of 67 to 73 cents. but significantly up 81.5 percent from same period last year. ISR's profit per diluted ADS was 66.3 cents, a midpoint of the guidance of 63.5 to 69.5 cents, but significantly up 73.1 percent year over year. Revenue from large display driver was 110 $.6 million in Q1, a decrease of 11.5% sequentially, but an increase of approximately 60% year-over-year. TV revenue was flat sequentially, anchored by high-end and large-sized TV shipments to key account. Despite the first quarter being a seasonally low period and continued soft TV demand, After consecutive quarters of strong growth, both monitor and notebook IC sales decreased sequentially as we guided on the backdrop of slowing end-market sales through. However, both growth nicely on a year-over-year basis, a reflection of our leading position across high-end displays and premium models. Large panel driver RIC accounted for 26.8% of the total revenue for this quarter, compared to 27.7% in the first quarter of 2021 and 22.6% a year ago. Moving on to our small and medium-sized display driver segment. Revenue was $258.5 million, a decline of mid-single-digit, sequentially, by an increase of more than 25% year-over-year. The robust sales growth in our automotive segment for the past several quarters continued during Q1. Automotive IT sales increased more than 30% sequentially and more than 170% year-over-year. Our e-paper sales increased more than 15% sequentially in Q1. despite a shimmering hot at the end of the quarter caused by city lockdowns in China. Small and medium-sized driver IC segments accounted for 62.6% of total sales for the quarter, compared to 61.2% in the previous quarter and 66.1% a year ago. In Q1, the automotive driver segment became our single largest revenue contributor, representing over 25% of the total sales. We expect this upward trend in automotive contribution to continue throughout 2022. The revenue growth in automotive driver IC was backed by comprehensive design wing coverage across the panel houses, tier wings, and the car makers alongside increased capacity for both discrete DDIC and TDDI. Automotive DDIC sales, which is sales' predominant portion of our automotive IC revenue, enjoyed decent first quarter growth, up more than 20% sequentially, with demand continuing to outpass supply. Our TDDI for automotive we reached an impressive milestone with over 3 million units shipped during the first quarter as we previously guided. Given our leadership position in automotive driver IC, comprehensive product offerings, and the growing vehicle display market, we expect sustainable, robust growth in our automotive business with further market share gains on top of fast spending market. After many quarters of consecutive growth, RQ1 tabular revenue slightly declined off a high base by a mere single digit. However, tabular revenue was up low teams on a year-over-year basis. due to strength in our TDDI sales, which grew no single digit from the proactive adoption of all leading non-iOS tablet names. We maintained our leading market share position in the non-iOS tablet market with assessor rated TDDI penetration among leading brand names. In line with our guidance, first quarter smartphone revenue declined double-digit sequential. The smartphone market continued to be challenged by sluggish demand, unexpected lockdowns in China, and the geopolitical tensions resulting in significantly reduced demand visibility at panel houses and OEMs, which have started to reduce their IC inventory. As we mentioned, On last quarter's call, we expected a portion of the first quarter decline due to our strategically initiated product transition for key customers' new design, which led to less production output during Q1. First quarter non-driver revenues came in better than expected at $43.7 million, a sequential decrease of low-tech, but up around 25% year-over-year. The better-than-expected result was driven by higher shipment of our ultra-low-power AI image-sensing total solution to the notebook market. Our T-Con business was slightly down, missed single digits sequentially, but increased more than 50% year-over-year, a reflection of better mix towards high-end product area, such as the 4K, 8K TV, gaming monitor, low-power notebook, and automotive T-con. Non-driver product in Q1 accounted for 10.6% of total revenue as compared to 11.1% in the fourth quarter of 2021 and 11.3% a year ago. Now IFI's gross margin for the first quarter was 47%, a decrease from 51.8% of last quarter, but much higher than 40.2% of the same period last year. As we previously discussed, there were two primary factors that adversely impacted our margin profile. First, our cost of goods sold for Q1 reflected the higher foundry price from the previous quarter. Second, the expedited customer orders for which we enjoyed premium prices decreased in Q1 due to market softness. IFI's gross margin was also 47 percent for the quarter. Our non-IFI's operating expenses for the first quarter was $44 million. down 9.3% from the previous quarter, but up 12.3% from a year ago. As a reminder, the sequential operating expenses decrease was caused by a one-time cash bonus at the end of December last year to further reward employees for our last year's remarkable financial results. The year-over-year increase was caused mainly by the increased salary and R&D expenses. IFRS operating expenses was $51.5 million for the first quarter, down 8% from the preceding quarter, but up 30.5% from a year ago. The higher IFRS figures were mainly due to the change of annual bonus compensation, which we award employees at the end of September each year. The 2021 annual bonus compensation, including RSUs and cash awards, totaled $74.7 million, out of which $24.8 million was immediately vested and recognized in the third quarter of 2021. The remainder will be equally vested in three tranches at the first, second, and third anniversaries of the grant date. The remaining compensation expenses will be recognized on a straight-line basis over the vasting period of each change. The first quarter non-IFI operating income was $149.9 million, or 36.3% of sales, versus 41.1% of sales in the last quarter and 27.5% of sales from a year ago. Now, IFIS after-tax profit was $121.9 million, or 69.7 cents per diluted ADS, decreased from $148.4 million, or 84.9 cents per diluted ADS last quarter, but significantly higher than $67.1 million, or 38.4 cents for the same period last year. Turning to the balance sheet, we had $447.1 million of cash, cash equivalent, and other financial assets as of March 31, 2022, compared to $245.8 million at the same time last year and the $364.4 million a quarter ago. The higher cash balance, was mainly from $72 million of operating cash inflow during the quarter and the payment received from the customer for the purpose of securing their long-term ship supply. We had $51 million of long-term unsecured loans at the end of Q1, of which $6 million was current portion. Our quarter end inventories of March 31, 2022 was $253.1 million, up from $198.6 million last quarter and up from $114.9 million a year ago. Accounts receivable at the end of March 2022 was $442.2 million, up from $410.2 million last quarter and upfront $289.1 million a year ago. DSO was 96 days at the quarter end as compared to 84 days a year ago and the 97 days for last quarter. First quarter CapEx expenditures were $3.6 million versus $2 million for both last quarter and a year ago. The first quarter CAPEX was mainly for R&D-related equipment and in-house tester for our IC design business. Just prior to today's call, we announced an annual cash dividend of $1.25 per ADS, totally approximately $217.9 million, and the payable on July 12, 2022. The payout ratio is 50% of net profit of last year, which is lower than our average payout ratio historically. The relatively low payout ratio reflects our decision to reserve sufficient working capital in the light of macroeconomic uncertainties and to facilitate our anticipated growth for the next few years. We are grateful for the continued support of our shareholders as we continue to execute our business objectives and strive to deliver sustainable long-term growth. As of March 31, 2022, Hymex had 174.3 ADS outstanding unchanged from last quarter. On a fully diluted basis, total numbers of ABS outstanding for the first quarter was 174.8 million. Now, turning to our second quarter 2022 guidance, we expect second quarter revenue to decline 16 percent to 20 percent sequentially. Now, IFI's growth margin is expected to be around 43 percent to 45 percent. depending on the final product mix. Now, IFS profit attributable to shareholders is expected to be in the range of 45 to 50 cents per fully diluted ADS. IFS profit attributable to shareholders is estimated to be in the range of 41.5 to 46.5 cents per fully diluted area. I would now like to turn the call to Jordan. Jordan, the floor is yours.