Himax Technologies, Inc.

Hello, ladies and gentlemen. Welcome to the HIMAX Technologies, Inc. First Quarter 2023 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. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. As a reminder, this conference call is being recorded. I would now like to hand the conference over to your host, Mr. Mark Schwalenberg from MZ Group.

Welcome, everyone, to HIMAC's first quarter 2023 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 risks to differ materially from those described in this conference call. A list of factors can be found in the company's SEC filings. Form 20F for the year ended December 31, 2022, in the section entitled Risk Factors, as may be amended. Except for the company's full year of 2022 financials, which were provided in the company's 20F and filed with the SEC on April 6, 2023. 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 IR PR Office at IMAX. On today's call, I will first review the HI-MACS consolidated finance performance for the first quarter 2023, followed by our second quarter 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 IFIS and non-IFIS basis. The non-IFIS financials is good share-based compensation, acquisition-related charges, and the cash award. Despite the challenges of ongoing macro headwinds and the seasonal effects, first quarter revenues and EPS both beat our guidance, while gross margin was within the guidance range issued on February 9, 2023. First quarter revenue registered to $244.2 million, a decrease of 6.9% sequentially, but marked better than our guidance of a decrease of 12% to 17% sequentially. The better than guidance sales were attributable to increased order momentum, particularly in the large display driver IC business and the smartphone and the tablet TDI segments. as well as our continuous effort to deplete inventory. IFI's gross margin came in at 28.1%, a decrease from 30.5% last quarter, but within the guidance range of 28% to 30%. Gross margin was impacted by several factors, first and primarily First, we incurred the high cost of our asset inventories that were sourced during a period when foundry and back-end prices peaked. Second, we had to write down certain unsought inventories due to market price decline. Finally, there was price erosion, a requisite part of ongoing inventory of loading process. IFIS profit per diluted ADS was 8.5 cents, surpassing our guidance of 3.5 cents to 7 cents. Non-IFIS profit per diluted ADS was 11.5 cents, beating our guidance of 6.5 cents to 10 cents. Revenue from large display driver was $53 million, an increase of 21.8% sequentially and substantially above our PI guidance of up high single digits from last quarter. Monitor IC sales grew remarkably as expected, increasing by a decent double-digit quarter-over-quarter. This increased momentum is primarily due to leading customers starting to replenish chips following several quarters of channel inventory reduction. Notebook sales were also better than guided due to demand from chip replenishment. We saw strong sequential growth of PVIC sales stemming from increasing order from customers preparing for upcoming China shopping festivals. Large panel driver IC sales accounted for 21.7% of total revenues for this quarter compared to 16.6% last quarter and 26.8% a year ago. Moving on to our small and immediate size of the display driver segment. Revenue was $154.7 million, a decrease of 12.8% sequentially, yet ahead of our guidance due to increasing shipment of smartphone and the tablet. especially TDDI products, to global leading brands after Lunar New Year holidays. Q1, automotive driver sales decreased mid-teens quarter over quarter as guided. Automotive DDI sales were better than expected due to customers' moderated inventory reduction majors. For automotive TDDI, Despite the widespread adoption of our products in the EV, sales unexpectedly declined as panel houses cut back their IT purchases while experiencing sudden order suspensions from their EV customers. The underlying cost is exacerbated EV price compensation, which has led major Chinese automakers to drastically cut production and enforce stringent cost control measures. Yet automotive driver business still represented the largest revenue contributor for us with 30% of total sales in the first quarter. We remain optimistic about our automotive DDIC growth potential in the coming years as we have secured about around 300 design wings, a number which is still growing as we speak, which puts us significantly ahead of our peers. At this moment, only one-third of the acquired design wings have commenced production, indicating enormous upside potential in the coming years after the remaining design wings enter mass production. Small and media-sized driver IC segment accounted for 63.3% of total sales for the quarter, compared to 67.6% in the previous quarter and 62.6% a year ago. First quarter non-driver sales also exceeded guidance with revenue of $36.5 million, down 11.8% from a quarter ago. Our TCOM business was up single-digit in the first quarter, markedly surpassing the guidance of meeting decline, bolstered by decent shipment of automotive TCOM as well as better-than-expected shipment of large-size display TCOM. TCOM business represented over 9% of our total sales in the first quarter. It's worth highlighting that our automotive local dimming TCOM technology was recently awarded Gold Medal Award at Touch Taiwan 2023, another illustration of our leading position in cutting-edge technology for automotive display. Jordan will elaborate on this later. For automotive TCOM, backed by strong-order pipeline, we anticipate business momentum to accelerate with rapid expanding design wins across the board. Non-driver products in Q1 accounted for 15% of total revenues as compared to 15.8% in the previous quarter and 10.6% a year ago. Our IFIS operating expenses for the first quarter were $51 million a decline of 2.9% from the previous quarter and a down 1% from a year ago. Amidst the prevailing macroeconomy headwinds, we continued to tighten our expense control. Now, IFI's operating expenses were $44.5 million for the first quarter, down 2.5% from the preceding quarter and up 1.1% from a year ago. First quarter IFIS operating income was $17.6 million or 7.2% of sales versus 10.5% of sales in the last quarter and 34.5% of sales from a year ago. Now IFIS operating income was $24.2 million or 9.9% of sales compared to 13.1% last quarter and 36.3% same quarter last year. IFIS after-tax profit was $14.9 million, or 8.5 cents per diluted ADS, compared to $42.2 million, or 24.1 cents per diluted ADS last quarter. First quarter non-IFI's after-tax profit was $20.1 million or 11.5 cents per diluted ADS compared to $47.7 million or 27.3 cents in the previous quarter. Turning to the balance sheet, we had $223.8 million of cash, cash equivalents, and other financial assets as of March 31, 2023, compared to $447.1 million at the same time last year and the $229.9 million a quarter ago. The decrease in cash was a result of cash outflow from investing activities, which was mainly used to make final payment for a major AMOLED capacity agreement for smartphones that we had signed. in 2021, offset by $66.4 million of operating cash inflow in the first quarter. We had $45 million of long-term unsecured loans at the end of the first quarter, of which $6 million was current portion. dollars inventory, wires still higher than $253.1 million a year ago were markedly lower than $370.9 million last quarter. Accounts receivable at the end of March 2023 was $252.2 million, down from $261.1 million last quarter and down from $442.2 million a year ago. DSO was 93 days at the quarter end, as compared to 96 days a year ago and 79 days last quarter. First quarter capital expenditure was $2.8 million versus $2.3 million last quarter and $3.6 million a year ago. The first quarter CapEx was mainly for our IC design business. Just prior to today's call, we announced an annual cash dividend of $0.48 per ADS, totaling approximately $83.7 million and payable on July 12, 2023. The payout ratio is 35.4%. We have decided on the relatively low payout ratio in light of a prevailing macroeconomic uncertainty. We are grateful for the continuous support of our shareholders as we continue to execute our business objectives and strive to deliver sustainable long-term growth while maintaining a healthy balance sheet. As of March 31, 2023, HyMax has 174.4 million ADS outstanding unchanged from last quarter. On a fully diluted basis, total number of ADS outstanding for the first quarter was 174.8 million. Now, turning to our second quarter 2023 guidance, we expect the second quarter revenue to be in the range of flat to down 9% sequentially. IFI scores margin is expected to be around 20% to 21%. depending on the final product mix. The second quarter IFRS profit attributable to shareholders is estimated to be in the range of minus 2.9 to 0.6 cents per basic ADS. Now IFRS profit attributable to shareholders is expected to be in the range of 0.1 to 3.6 cents per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q2 outlook. Jordan, the floor is yours.