Himax Technologies, Inc.

Hello, ladies and gentlemen. Welcome to the High Max Technologies Incorporated fourth quarter and full year 2022 earnings conference call. At this time, all participants are in the 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 Schwallenberg from MZ Group, please go ahead.

Thank you. Welcome, everyone, to the HIMAC's fourth quarter and full year 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 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. A list of risk factors can be found in the company's SEC filings, Form 20F, for 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 23, 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 Lee. Chief IRPR Officer at HIMAC. On today's call, I will first review the HIMAC consolidated financial performance for the fourth quarter and the full year 2022, followed by our first quarter 2023 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-IFRS financials include share-based compensation, acquisition-related charges, and cash award. We pre-announced preliminary key financial results from the fourth quarter 2022 on January 12, 2023, where revenues and EPS both exceeded guidance, while gross margin came in moderately below the guidance range issued on November 10, 2022. Today, our reported results for revenues, gross margin, and EPS are all in line with the pre-announced results. Fourth quarter net revenues of $2,062.3 million increased 22.8 percent sequentially, substantially exceeding our guidance of an increase of around 4% to 8% sequentially, despite the macro headwinds continuing to challenge our business. The increased sales momentum was attributed to our continuous effort to deplete inventory, particularly in the small and medium-sized TDDI segments. IFIs and non-IFI scores margin both came in at 30.5%, a decrease from 36% and 36.3% respectively last quarter, and lower than the guidance range of 31.5% to 33.5%. Price erosion from offloading assets inventory was the predominant factor that adversely impacted our margin profile. Contributing to margin contraction was higher cost of the inventory, sourced primarily during 2021 and early 2022 when foundry and the back-end pricings were higher due to capacity constraints. Yet, IFRS profit per diluted ADS was 24.1 cents, exceeding our guidance of 17.8 cents to 20.8 cents. Now IFRI's profit per diluted ADS was 27.3 cents, beating our guidance of 21 cents to 24 cents. Revenue from large display driver was $43.5 million in Q4, an increase of 4.3% sequentially, exceeding our prior guidance of flat from last quarter. TV sales grew nicely as expected, increasing single-digit quarter-over-quarter, and appear to have bottomed following several quarters of shock correction, while both monitor and notebook sales were better than guided. Large panel driver IT sales accounted for 16.6% of total revenues for the quarter. compared to 19.3% last quarter and 27.7% a year ago. Moving on to our small and medium-sized display driver segments, revenue was $177.4 million, an increase of 25.5% sequentially, and ahead of our guidance of a single-digit increase primarily a result of increasing shipment of TTDI in all three sectors, namely smartphone, tablet, and automotive. Despite the challenging macro environment, our fourth quarter revenue for the tablet was up more than 100% sequentially, thanks to the strong shipment in high-end TTDI products, an illustration of our leading solutions being adopted by more customers for their next-generation product, supporting large-sized, high frame rate displays and high-precision active stylus features. Meanwhile, the AMOLED total solution sales, including TCAM and DDIC, increased mid-teens quarter-over-quarter and accounted for more than 8% of total sales. mainly attributable to our tablet AMOLED total solution, supporting the mass production of premium tablet models for a global leading customer. Q4 automotive driver sales increased single-digit quarter-over-quarter, better than guided customer results, especially for TDDI. Automotive driver business once again represented the largest revenue contributor with over 30% of the total sales in the fourth quarter, a result of our comprehensive product coverage and the increasing automotive TDDI design wins across panel house, tier one, and auto brand. It's worth noting that our automotive TDDI sales surged by more than 170% on a year-over-year basis. boosted by the robust adoption of the technology for customers' new generation car models. Small and medium-sized driver IC segments accounted for 67.6% of total sales for the quarter, compared to 66.2% in the previous quarter and 61.2% a year ago. Fourth quarter non-driver sales also beat guidance with revenue of $41.4 million, up 33.8% from a quarter ago. Our T-Com business was up a solid double-digit sequentially, bolstered by higher shipment of large-sized display drivers, automotive driver, as well as tablet drivers for AMO late. For automotive T-Com, we anticipate business momentum to accelerate in coming quarters backed by a strong order pipeline and a rapid expanding design wing across different continents. T-Com business represented over 8% of total sales in the fourth quarter. Non-driver products in Q4 accounted for 15.8% of total revenues as compared to 14.5% in the previous quarter and 11.1% a year ago. Our IFRS operating expenses for the fourth quarter were 52.5 million dollars a decline of 27.9 percent from the previous quarter and a down 6.2 percent from a year ago. The sequential decrease was caused mainly by decreased annual bonus and the salary expenses, partially offset by an increase in R&D expenses. As previously mentioned, we typically grant annual bonuses, including cash and ISU. to our staff at the end of September each year, which can lead to higher IFRS operating expenses in the third quarter compared to the other quarters of the year. The year-over-year expense decrease was primarily related to the special bonus we awarded our employees at the end of Q4 2021. Excluding the special bonus paid in Q4 last year, the IFI's operating expenses would have increased 2% year-over-year during the fourth quarter. Now, IFI's operating expenses were $45.6 million for the fourth quarter, down 2.2% from the preceding quarter and down 6% from a year ago. Fourth quarter IFRS operating income was $27.5 million or 10.5% of sales versus 1.8% of sales in last quarter and the 39.4% of sales from a year ago. Now IFRS operating income was $34.5 million or 13.1% of sales compared to 14.5% last quarter and 41.1% quarter last year. IFRS after-tax profit was $42.2 million or 24.1 cents per diluted ADF compared to $8.3 million or 4.8 cents per diluted ADF last quarter. We made divestiture of long-term assets during Q4 2022, which resulted in an operating income of around $11 million on the after-tax basis. First quarter non-IFIS after-tax profit was $47.7 million, or 27.3 cents per diluted ADS, compared to $29.8 million, or 17 cents in the previous quarter. Now let's have a quick review on the 2022 four-year financial performance. Revenues totaled $1.2 billion in 2022, representing a 22.3% decline compared to 2021. Unexpected lockdown in China, geographical tensions and the macroeconomic related factors created a challenging operating environment and impaired our business performance for the year. The halt in consumer demand and the significantly reduced visibility at panel houses and OEMs toward the end of first quarter adversely impact IC demand and consequently our sales. Given the nature of wafer production, which usually starts months in advance, the abrupt drop in demand resulted in a rapid increase in our inventory. Revenue from large-panel display drivers totaled $264 million in 2022, declined 37.7% year-over-year, representing 22% of total sales as compared to 25.7% in 2021. Small and medium-sized driver sales totaled a decrease of 19.2% year-over-year, representing 64.8% of our total revenues as compared to 62.3% in 2021. Non-driver product sales totaled $158.4 million, a decrease of 14.7%. percent year-over-year, representing 13.2 percent of our total sales as compared to 12 percent a year ago. Our automotive segment continued to see extraordinary business momentum in 2022. Automotive sales enjoyed the highest growth among all product lines up more than 50% on top of the remarkable strength in 2021 when sales grew more than 110%. For the year, sales of traditional DDIC for automotive were up over 30%, while automotive TDDI sales surged by more than 300%. As we mentioned repeatedly, Automotive displays continued to be adopted at a rapid rate in number, size, and technological sophistication, implying higher content value of driver IC per vehicle. As a market share leader in automotive display ICs, we continued to gain ground not only in DDIC but also in TTDI, supported by over 200 design wins, with the numbers still increasing as we speak. While our overall annual sales declined due to the unusual and abrupt demand halt, several new sales streams have started to contribute during 2022. including ICs for AMOLED and ultra-low-power Wi-Fi smart sensing. Both personal lines enjoyed higher than corporate average gross margin in 2022. On AMOLED, we provided AMOLED DIC and TCAM for automotive and the tablet displays. In addition, we are making good progress with leading panel houses for the development of AMOLED display driver for smartphone, TV, and the notebook applications. We anticipate the shipment of smartphone AMOLED drivers to start in the second half of 2023 for key customers in China and Korea. On the wide-side product line, we continue to support Dell for its production run-up in a range of newest models using our first-generation W1 solution. In addition, the host of leading laptop vendors and the CPU platform players have shown strong interest in broadening AI use cases of future generation smart notebook by adopting our next generation WE2 AI processor. Jordan will elaborate on this in a few minutes. backed by a strong business pipeline and the robust design-in activities in numerous AIoT applications with customers from all over the world, we expect strong sales momentum for Wi-Fi in 2023. IFI's gross margin in 2022 was 40.5%, decreased from 48.4% in 2021. The decline was largely attributable to price pressure resulting from excess inventory level following the sudden halt in demand beginning in the second quarter. In addition, charges related to unmet minimum purchase order from contract with foundry and the back-end suppliers entered during the unprecedented shortage in 2021 also lead to the eroding margin. Now IFRs gross margin was 40.6% in 2022, decreased from 48.5% in 2021. IFRs operating expenses in 2022 was $229.5 million, up 12.8% from 2021. The increase was primarily a result of vested portion of the annual bonus compensation awarded to employees in 2022, as well as previous year, along with increased salary and R&D expenses. Now IFRS operating expenses were $181.3 million, up 5.7% compared to 2021. 2022 IFIS operating income was $257.6 million or 21.4% of sales, a decrease from $545 million or 35.2% of sales in 2021. Now IFIS operating income was $306.8 million in contrast to $578.3 million in 2021. Our IFRS net profit for 2022 was $237 million, or $1.36 per diluted ADS, as compared to $436.9 million, or $2.37 per diluted ADS. 50 cents per diluted ADS in 2021. Now IFI's net profit for 2022 was the $276.1 million or $1.58 cents per diluted ADS as compared to $663.6 million $463.6 million or $2.65 per diluted ADS in 2021. Turning to the balance sheet, we have $229.9 million of cash equivalent and other financial assets as of December 31, 2022. compared to $364.1 million at the same time last year and $227.9 million a quarter ago. The substantial decrease in cash was a result of annual cash dividend payout of $2017.9 million particular offset by $82.9 million of operating cash inflow in 2022. We had $46.5 million of long-term unsecured loans as of the end of fourth quarter, of which $6 million was current portion. Our year-end inventory was $370.9 million down from $410.1 million last quarter and up from $198.6 million a year ago. Accounts receivable at the end of December 2022 was $261.1 million up from $253.3 million last quarter and from $410.2 million a year ago. DSO was 79 days at the quarter end as compared to 97 days a year ago and 74 days last quarter. Fourth quarter capital expenditures were $2.3 million versus $3.4 million last quarter and $2 million a year ago. The fourth quarter CAPEX was mainly for R&D-related equipment and in-house tester of our IC design business. Total capital expenditures for 2022 were $11.8 million, mainly for design tools, R&D equipment, as well as in-house capture of our IT design business as compared to $7.6 million in 2021. As of December 31, 2022, HIMAX has 174.4 million ADS outstanding unchanged from last quarter. On a fully diluted basis, total number of ADS outstanding for the fourth quarter was 175 million. Now, turning to our first quarter 2023 guidance, we expect first quarter revenues to decrease 12% to 17% sequentially. IFRS gross margin is expected to be around 28% to 30%, depending on the final product mix. The first quarter IFRS profit attributable to shareholders is estimated to be in the range of 3.5 cents to 7 cents per fully diluted ADF. Now, IFIS profit attributable to shareholder is expected to be in the range of 6.5 cents to 10 cents per fully diluted ADS. To note, the EPS guidance already accounts for certain fine exchange loss attributable to NT dollar appreciation against the U.S. dollar based on the prevailing exchange rate. As a reminder, much of our local incurred expenses, including the bulk of employee salaries, as well as outstanding income tax payables, are NT dollar-based. I will now turn the call over to Jordan to discuss our Q1 2023 outlook. Jordan, the floor is yours.