Himax Technologies, Inc.

Good day and thank you for standing by. Welcome to the Hymex Technologies Incorporated first quarter 2024 conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded At this time, I'd like to hand the conference over to your host, Mr. Mark Schwellenberg from MZ Group. Please go ahead.

Welcome, everyone, to the HIMAC's first quarter 2024 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've 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. A list of the factors can be found in the company's SEC filings. Form 20F for the year ended December 31st, 2023, in the section entitled Risk Factors, as may be amended. Except for the company's full year of 2023 financials, which were provided in the company's 20F and filed with the SEC on April 2nd, 2024, 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 statement and may vary materially from the audited consolidated financial information for the same period. The company undertakes no obligation to publicly update or advise 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 IRP Officer at HIMAC. On today's call, I will first review IMF's consolidated financial performance for the first quarter of 2024, 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 an ISI basis. We are pleased to report that Q1 revenue, gross margin, and profit all exceeded guidance issued on February 6, 2024, despite the seasonal downturn, as well as ongoing macro headwinds. The better-than-expected financial results primarily stemmed from strong order momentum in all automotive and the TECOM product lines, coupled with cost improvement and a favorable product mix. First quarter revenues registered $207.6 million, a decrease of 8.8% sequentially, exceeding our guidance range of a 9% to 16% decline. Gross margin came in at 29.3%, outperforming our guidance of around 28.5%. Q1 profit per diluted ADS was 7.1 cents, surpassing the guidance range of 2 cents. to 5 cents. Revenue from large district drivers decreased 7% sequentially to $31.3 million due to seasonally soft macroeconomic conditions compounded by ongoing production and inventory control measures by our leading panel customers. Consequently, our sales of TV and monitor ICs declined sequentially. However, notebook IC sales saw a nice double-digit increase quarter over quarter as customers associated their purchases after several quarters of the stocking. Sales of large panel driver ICs accounted for 15.1% of total revenues for the quarter, compared to 14.8% last quarter and 21.7% a year ago. Small and medium-sized district driver segment revenue reached $144.3 million, a sequential decline of 11.5%. The better-than-guidance result was fueled by strong sales in DDIC for automotive and on late tabloids. Driven by rush orders for traditional DDIC, Q1 automotive driver sales encompassing both traditional DDIC and the TDDI experienced a single-digit decline, outperforming the guidance of a mid-teens decline. Meanwhile, automotive TDDI sales continued to defy the industrial downturn and increased sequentially thanks to our robust pipeline of design win projects. The automotive business including traditional DDIC, TDDI, TCAM, and Olay sales remained the largest revenue contributor in first quarter, representing around 46% of total sales. Q1 smartphone ISD sales declined sequentially but exceeded guidance fueled by rush orders from leading customers. Conversely, tablet driver sales declined as expected amnesty, the typical low season characterized by sluggish demand. The small and medium-sized driver IC segment accounted for 69.5% of total sales for the quarter, compared to 71.6% in the previous quarter and 63.3% a year ago. First quarter non-driver sales exceeded guidance, reaching $32 million an increase of 3.4% from the previous quarter. The better-than-expected performance is attributable to a resurgence in order for large-sized spray TCAM products. In the realm of automotive TCAM, the adoption of our automotive local DMH TCAM continues to rapidly expand, as evidenced by increasing number of project awards from numerous tier one for the new vehicle project of their OEM customers around the world. This set the stage for robust sales growth in coming years. Non-driver product accounted for 15.4% of total revenues as compared to 13.6% in previous quarter and the 15% a year ago. First quarter operating expenses were $50.7 million, a decrease of 3.1% from the previous quarter and a decline of 0.6% from a year ago. Given the persistent macroeconomic headwind, we continue to be diligent with strict budget and expense control measures. First quarter operating income was $10 million or 4.8% of sales compared to 7.2% of sales for the same period last year and 7.3% of sales last quarter. The decreases in operating margin were primarily driven by lower sales. The sequential decrease was also attributed to lower growth margin. However, Q2 growth margin is on track to rebound from Q1. First quarter after-test profit was $12.5 million, or 7.1 cents per diluted ADF, compared to $23.6 million, or 13.5 cents per diluted ADF last quarter, and $14.9 million, or 8.5 cents per diluted ADF in the same period last year. Turning to the balance sheet, we had $277.4 million of cash, cash equivalents, and other financial assets at the end of March 2024, compared to $223.8 million at the same time last year and $206.4 million a quarter ago. The increase in cash balance stemmed primarily from continuous debunking effort across all major profile lines. In Q2, however, cash equivalent and other financial assets are set to decline primarily due to decreasing sales in the previous two quarters, resulting in lower Q1 receivables. In addition, accounts payables is expected to increase as a result of the rising Q1 wafer orders placed in preparation for higher shipment volumes starting in Q2. Other significant Q2 cash outflows include annual income tax payments as well as refunds to certain customers for deposits made during the industry-wide capacity supply shortage. As of the end of the first quarter, we had $39 million in long-term unsecured loans, of which $6 million was the recurring portion. Our quarter end inventory as of March 31st, 2024, was $201.9 million, lower than $217.3 million last quarter, yet another illustration of our successful destructing effort. Accounts receivables at the end of March 2024 was $212.3 million, down from $235.8 million last quarter and down from $252.2 million a year ago. DSO was 93 days at the quarter end. as compared to 91 days the last quarter and 93 days a year ago. First quarter capital expenditures was $2.7 million versus $15.1 million last quarter and $2.8 million a year ago. The first quarter CAPEX was mainly for R&D-related equipment and in-house testers of our IC design business. Prior to today's call, we announced an annual cash dividend of $0.29 per ADS, totaling $51 million in the payroll on July 12, 2024. With a payout ratio of 100% of the previous year's profit, the high payout ratio is supported by our positive business outlook as we pursue business objectives and the strike for sustainable long-term growth and shareholder value while maintaining the healthy balance sheets. As of March 31, 2024, HyMAC has 174.7 million ADS outstanding unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the first quarter was Now, turning to our second quarter 2024 guidance, we expect second quarter revenues to increase 8% to 13% sequentially. Growth margin is expected to be around 31.5% to 33.5%, a notable increase from 29.3% of the previous quarter, primarily because of a higher sales from automotive and the T-com business, both of which enjoyed both better gross margin than corporate average. The final number may vary depending on product mix. The second quarter profit attributable to shareholders is estimated to be in the range of $0.13 to $0.17 per fully diluted area. I will now turn the call over to Jordan to discuss our Q2 outlook. Jordan, the floor is yours.

Thank you, Eric. Amidst ongoing macroeconomic uncertainty, customer behavior in the display market remains conservative, with panel makers continuing to implement strict output control measures amidst the cautious and brand panel procurement environment. Given the limited visibility, customers tend to maintain lean inventory levels and underestimate demand, thereby providing us with conservative forecasts accompanied by last-minute order increases. This trend has persisted over the last seven consecutive quarters, including Q1. with our actual sales consistently at the upper end of or exceeding our guidance range. As we look ahead to the second half, even with lean inventory levels, we anticipate this conservative market sentiment will persist, causing customers to continue to prioritize agility in response to market dynamics. With that being said, we believe Q1 will be the low point for this year and see sales starting to pick up in Q2, especially in the automotive sector. With several other upcoming demand catalysts on the horizon, including major sporting events and festival shopping seasons, business momentum is expected to continue to steadily improve throughout the second half. Now, let me elaborate a bit on the near-term outlook for automotive business, our largest source of revenue. While many semiconductor vendors and their customers are still going through painstaking stocking processes, our inventory position for automotive sector has become healthy since the end of last year, with our panel customers also maintaining low stock levels at present. This is best illustrated by the large quantities of rush orders we received from panel customers over the last two months, for which we also had to place rush orders to our factory vendors. Therefore, now we stand in the recent headwinds faced by the global automotive industry. Our outlook for the automotive display IT business remains positive for the second half of the year. The automotive display market is experiencing the mega-trend of expanding quantities, sizes, and sophistication of displays within vehicles, as fancy displays are increasingly becoming the major selling point for car makers. As the leader in the automotive display IT business, HIMAX is poised to benefit from this trend, which implies higher content value per vehicle for display semiconductor vendors, such as us, leading to sustainable growth slated for the next few years. Our confidence stems from our dominant design wind pipeline in TDDI and Logo Demand T-Con, both relatively new and cutting-edge technologies for automotive displays, with accelerating volume, a momentum which is expected to carry on over the next few years. This will further solidify our position in the market where we are already the leader in the traditional DDIC. Moreover, more customers are adopting Himex's local dimming TCAM along with TDDI or LTDI. an integral part of their development platform for crafting new automotive displays, reflecting strong customer loyalty for our technology and service. Additionally, we are implementing cost optimization and supplier diversification strategies to enhance supply flexibility and cost effectiveness, as exemplified by our recent strategic partnership announced with Netship for the automotive market. As Eric mentioned earlier, we just declared our annual cash dividend with a payout ratio of 1% of last year's profit. Our decision for the high dividend payout ratio this year underscores our unwavering commitment to share all the value, even in the face of uncertain macroeconomic conditions. This not only recognizes the ongoing support of our shareholders, but also demonstrates our confidence in our financial stability. With that, I will now begin with an update on the last panel Tri-YC business. In Q2 2024, we anticipate a mid-teens sequential increase in large display Tri-YC revenue. primarily bolstered by customer restocking following several quarters of market demand, as well as increasing orders from customers preparing for the upcoming shopping festivals. Q2 TV and monitor IT sales are expected to increase single-digit and nice double-digit respectively, quarter over quarter. In contrast, Notebook IC sales are poised for a decline following strong restocking in the previous quarter. In the notebook market, a burgeoning trend of AIPC is eversion, prompting demands for display upgrades to include touch-enabled features and or adoption of OLED displays. HIMAX offers comprehensive offerings in both LCD and OLED technologies, encompassing DDIC, T-CON, and touch-related products. As we look ahead to 2025, the anticipated beginning of replacement cycles, we are well positioned to capitalize on this opportunity, which numerous in-sale TDI projects for mainstream LCD notebooks and DDIC and touch controllers for OLED notebooks, some of which poised to enter mass production for leading brands in the second half of this year. We believe this will serve as an important growth catalyst for us in notebooks and elevate our presence in the market. Turning to the small and medium-sized display driver IC pieces, we anticipate second quarter revenue to increase single-digit sequentially. Automotive IC revenue is expected to grow high-teens sequentially, with sales for both TDIC and TDDI poised for sequential growth, despite recent reports of softening electronic vehicles' demand. Our leadership position in automotive TDDI remains solid, underscored by the rapidly expanding adoption as demonstrated by more than 450 secured design wind projects and a continuous influx of new pipeline and design winds across the board. It's also important to note that only approximately 30% of awarded projects are currently in mass production. As an indication of the potential lucrative growth opportunity we believe is yet to be realized. Automotive TDDI sales are anticipated to represent more than 40% of automotive driver sales in Q2. In contrast, both smartphone and tablet sales are projected to decline quarter over quarter as consumers prolong their replacement cycles. in response to the challenging economic environment. To mitigate these sluggish conditions, we have taken steps to improve our cost structure by diversifying our supplier base to position HIMAX for richer resurgence in demand. To elaborate further on our automotive IT business, where we have a more than 40% market share, offers the industry's most comprehensive LCD product lineup, which includes traditional DDIC and TDDI technologies, alongside cutting-edge LTDI and low-beaming T-CON solutions. Moreover, we are actively expanding and bolstering our footprint in OLED with a comprehensive range of products covering DDIC, T-CON, and on-sale touch controller, while forming strategic alliances with top panel manufacturers in Korea and China. This proactive approach aligns us with the dynamic transformation of the industry towards increasing adoption of OLED displays for high vehicles. The inherent the inherent flexibility of OLED displays to cater to foldable or curved shapes. Along with their outstanding visual performance and low power consumption opens new horizons for automotive interior displays. Notably, our meticulously engineered OLED on-sale touch controller sets a new standard as it boasts an industry-leading touch-to-noise ratio exceeding 45 dB and offers heightened sensitivity accommodating challenging user conditions such as glove wearing and wet finger operations. Our comprehensive solution in automotive LCD and OLED displays address the broad spectrum of customer preferences and requirements, nurturing robust customer loyalty, and fostering collaborations with global panel makers, QI suppliers, and automotive manufacturers. We anticipate our automotive business will remain a significant catalyst for growth moving forward. Next for an update on our OLED business. As I just covered, we have made significant progress in providing solutions for automotive OLED displays, an area with exciting growth potential. We also are expanding into other OLED applications such as tablet, notebook, and monitor through collaborations with leading panel manufacturers in Korea and China. featuring a comprehensive offering covering DDIC, TCAM, and touch controllers. Additional products with new feature enhancements are slated to enter mass production in the second half of 2024. Regarding smartphone OLED, the current slowdown in smartphone market demand has unfortunately necessitated adjustment to our initial timeline. Nevertheless, collaborations with customers in Korea and China persist with ongoing verification and partnership projects. I would like to now turn to our non-driver IC business update. First, for an update on our TCAM business, we anticipate a notable sequential increase of more than 40% in T-CON sales in Q2, propelled by escalating shipments for T-CON in large-size displays and automotives. HIMAT has been devoted to developing panel driver ICs and timing controllers for decades. We stand as the industry leader in both monitor and automotive T-CONs, universally adopted by leading panel makers across the board. In the monitor TCAM sector, HIMAX excels in the higher market, especially in gaming, where intricate designs are required for high resolution, high refresh rate, and low latency display performance. Crucial for achieving immersive gaming and entertainment experiences. In the automotive TCAM domain, Our leading position remains unchallenged, boasting well over 100 design wind projects powered by our cutting-edge Logo-Dimming technology, along with our industry-leading proprietary algorithm. The incorporation of Logo-Dimming T-CON not only significantly enhances the display's contrast ratio, but also offers improved power efficiency. particularly crucial for EV and large-sized displays. Our industry-leading Logo Dimming TCAM solutions support super high frame rates and a wide range of resolutions from Full HD up to 8K. We are encouraged by the rapidly expanding validation and widespread deployment of our solutions, initially in customers' premium car models. which have been expanded into mainstream models worldwide. In the second quarter, automotive T-cars are anticipated to grow more than 30% sequentially, representing 3% of total sales. From a longer-term perspective, the growing traction of our logo-beaming T-cars for automotive is on track to mirror the success of our automotive QDDI over the last couple of years. Switching gears to the Wi-Fi Azure Low-Power AI Sensing Solution, a cutting-edge endpoint AI integration featuring proprietary Azure Low-Power AI processors, always-on CMOS image sensors, and advanced CNN-based AI algorithms. In the rapidly evolving AI landscape, Wi-Fi AI technology stands out for its expertise in all-device tiny ML solutions and unique actual power consumption measuring nearly single-digit milliwatts. This opens the door for battery-powered end-point devices to incorporate AI sensing for intuitive and intelligent user interactions, something that would otherwise be impossible without such extremely low-power consumption AI. For instance, in smart door locks, which are typically battery-powered devices, China's leading high-end door lock maker, Desmond, harnessing high-axis, ultra-low power, Wi-Fi AI technology created the world's first smart door lock products that feature 24-7 sentry monitoring and real-time event recordings. Our Wi-Fi total solution for Desmond boasts an exceptionally low power draw of just 2.2 milliwatt, representing a novel and highly advantageous feature with minimal impact on battery life. The potent AI inherent in Wi-Fi allows the photo-lock camera to capture snapshots periodically on a 24-7 basis. And when detecting human presence, immediately start recording while concurrently waking up the door lock's much higher power consuming main processor. The result is a comprehensive event recording for seamless threat protection that better ensures security while mitigating potential breaches. All achieved with a battery-powered door lock. By working with ecosystem partners and customers, we are expanding Wi-Fi AI applications aggressively, covering new areas, including, but not limited to, smart home, smart agriculture, automotive, small fish, EMR, or automatic meter reading, healthcare, and a wide range of other AIoT applications. To broaden our market reach and help shorter customer development cycles. We also offer seamlessly integrated plug-and-play Wi-Fi modules. These modules enable no-code slash low-code AI development, while providing building context-aware AI algorithms, which are reprogrammable by the customer. Within a few months after its launch, Wi-Fi modules have been successful, have seen successful adoption in battery-powered parking systems across Asia, as well as applications in fleet management, occupancy sensing, pet tracking, people flow at the central, among others. Moreover, for companies with their own AI expertise, we provide hands-on open-source AI frameworks, toolchains, and robust AI models to streamline development efforts and reduce costs at the time for AI product development or AI product introduction. This year at the ISC West, a leading US trade show for the security industry, HIMAX unveiled Wi-Fi PalmVent technology and ultra-low-power contactless biometric authentication solution. Powered by the advanced Wi-Fi 2 AI processor, Wi-Fi PalmVAN can swiftly authenticate an individual's identity in less than 100 milliseconds while consuming nearly milliwatts of power. It boasts exceptional accuracy Enhancing security by minimizing the risk of duplication or spoofing through the distinct palm vent patterns unique to every individual. The solution targets battery-powered access control devices for a small group of authorized individuals. Having only launched recently, YSI palm vent technology has already attracted interest for applications such as automotives, door lock, surveillance, laptops, and more. We are actively accelerating verification and partnership projects in these areas and are enthusiastic about the potential for a wide-side palm vent authentication that marks a significant breakthrough in the industry. Next, for an update of our air-con final display technology, at the upcoming display week 2024 in May in San Jose, California. HIMAX will unveil its groundbreaking ultra-luminous new generation color sequential front-lear cross-micro display, capable of achieving a brightness of up to 250,000 nits. This represents a notable 2.5-fold increase from its predecessor announced at its display week, 2023, while maintaining low power consumption of just 300 milliwatts. Additionally, thanks to its compact form factor of just 0.5cc in volume, when incorporating both illumination optics and the air-cooled panel, stylish and everyday-ready AR glasses are becoming a reality. While volume commercialization of AR glasses targeted the general public may still take several years, we are proud that Hymax's new generation color sequential frontier calls stands as the sole viable solution in the marketplace for authentic see-through AR glasses. Delivering unparalleled brightness, power consumption, form vector, display quality, and mass production readiness. Collaborations with leading tech companies worldwide are on the rise, solidifying Himex's position as the leader in the field. For non-driver IT business, we expect revenue to increase double-digit sequentially in the second quarter. That concludes my report for this quarter. Thank you for your interest in HMAS. We appreciate you joining today's call and are now ready to take questions.

Thank you, Jordan. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Frank Wang with Athena Capital. You may proceed.

Yep. Good evening. The first question is on the auto sector. Texas Instruments, NSP, CSMC, UMCO indicate some softness in the auto sector. What is your view? And why are these leading semiconductor companies seem to be more pessimistic on the auto sector? While you are expecting a decent quarter of a quarter growth in the auto sector. Thank you.

The industry is going through softness in auto semiconductor business while we are guiding for a pretty strong outlook. So I guess Frank's question is why we are seeing this departure of directions. I think indeed we have seen in recent earned calls from semiconductor companies, both foundries and IDMs across US, Europe, and Japan, where they are giving rather cautionary outlook on the auto But if you read carefully about their comments, you will be able to see that they are not saying the auto industry's overall shipment is going to decline. What they are saying merely is that their stocks are perhaps too high and they are going through a stopping process. that is the reason for their cautionary outlook. And if you look at the industry forecast, most people are, I mean, while we are not expecting a very strong auto shipment for this year, people are not focusing any decline either. Typically at least something like 3 or 5% or some forecast even particularly for higher growth outlook for the vehicle shipment volume. So the industry actually remains solid, and I mentioned in my prepared remarks that our inventory for local market actually is very, very lean, and so are our customers' inventory positions. And I particularly mentioned in my prepared remarks that we actually had to take a lot of rush orders recently. Actually, I'm talking about very sizable quantities of rush orders from our panel customers. And the reason why they are giving rush orders clearly is because they have run out of stock and their existing stock cannot meet the customer demands. And with the rush orders, we also turn around and place our rush orders to our foundry partners because, again, for the same reason, our inventory is very low and our existing inventory simply cannot meet the demand of the customer. So I think I also explained in my prepared remarks, there has been a total of seven quarters in a row when we see our inventory consistently declining very nicely. And also we announced end of last year that we believe our inventory level has become very healthy and that certainly covers the auto industry. And I think that is the major reason for departure, I suppose. And also I think we continue to highlight the fact that auto industry is going through this mega trend to upgrade their panels in terms of quantity, feature, sophistication, size, etc. for vehicles panels. And that is very good news for panel makers targeting auto industry because for each vehicle, the panel content value is increasing. And even more so for IT vendors because for each panel going to vehicles, the IC content value is increasing. So we are going through that mega trend right now and being market leader, I think we really are taking a nice ride and enjoy this mega trend. So I hope that explains the short-term difference in our outlook as opposed to most semiconductor makers. Back to you, operator.

Thank you, Frank, for your question.

Yes, thank you, operator. Yes, can I just ask you to relay one more question, please? HIMAC is a leader in L-cost. Can I talk about the chance for see-through AR glasses to really happen? Thank you.

Okay. Yes, I suppose, Frank, asking about AR glasses and particularly our air-cooled solution, talking about market. And towards the end of my previous remarks, we highlighted the major breakthrough in technology and our excitement about the breakthrough. And I suppose, Not knowing, not hearing the details of Frank's question, I suppose many people may wonder, AR, as a general of products, has not seen great success so far. And of course, it's just a supporting technology for the AR glasses industry. is that is that is so what is all common is there really a future and uh the company over the many years seems to have uh been com you know committed to uh the development of uh their course industry or airport technology for air glasses so i guess the you know many people may have questions about whether this strategy actually makes sense and my response is uh obviously we believe there's uh there's a reasonable chance for AR glasses to become successful. And I will elaborate on the importance of micro-display or air-crossed micro-display for the success of AR glasses. And clearly, we are committed and frankly, bringing money to develop this technology for many, many years because of the simple reason that we have a very strong commitment for its success. And we certainly believe that the chance of success is quite good. And I will also highlight the fact that simply because the technology is so difficult, when it's successful, it's going to be tremendous potential, tremendous business opportunity for Himex because very few people are involved simply because the technology is actually quite challenging. Let me elaborate the background a little bit. One of the major technical challenges for see-through AR glasses is the display system, which, by definition, needs to be totally different than the displays we are so used to every day for, say, smartphone or watch, or even those for AR or MR goggles. So basically, a see-through display system is comprised of three things. A micro-display, which generates image a waveguide which projects the image, and a coupling lens which channels the image generated by micro-display to the waveguide. Now, because of the see-through nature and the need to allow for outdoor use, the brightness to eyes for displayable AR glasses needs to be significantly higher than those for the usual displays, which typically ranges between 250 to 300 nits a round. I'm talking about your usual notebook displays or stay-at-home displays or TV displays, typically between 250 to 350 nits. In comparison, our customers are now demanding for the brightness to be at least 1000 nits, which is quite a number of times higher than our usual displays. Now the trouble is the optical efficiencies of both the waveguide and the coupling lens are quite low, especially the waveguide which is typically as low as 1% or less, while for the coupling lens is around 50-60%. So what this means is that more than 99% of the brightness generated by the micro display is quote unquote wasted after traveling through the optical system and before the image is projected onto the eyes. And this is the reason why we are now offering our new generation from the air course with super high brightness of 250,000 nits. 250,000 nits. So on a four-part basis, if the waveguide efficiency is 1%, then our 250,000 nits air course can create about 1,500 nits brightness to eyes, which is going to meet the demand of our customers for AR glasses. So while we continue to work towards even higher brightness, we believe for the first time ever in the industry, we are finally seeing a micro-display which offers a legitimate level of brightness for AR glasses, targeting the general public. So to complete the story, in addition to the major breakthrough in brightness, our new front-lit air cores also offers low power consumption of around 300 milliwatts, as I mentioned in my previous remarks, and a form factor of just 0.5 cc in total volume. All of these are very critical for the success of AR glasses. Last but not least, our air-cooled solution is way beyond laboratory level and is actually now quite ready for volume production. I will just add one last point, which is the only competing technology for AR glasses for display is microLED, for which the industry has put in tremendous resources over the last few years to develop. billions of dollars of resources. In our view, our proprietary front-lit air hose provides much better power efficiency than micro-LED, i.e., given the same amount of power consumption, our solution actually produces much better brightness than micro-LED, than micro-LED micro-display. So, as far as we can tell, what we have achieved so far in our color-sequential front-year cost solution is far better than the performance delivered by any micro or e-micro display. However, we are offering comparable form factor with much better readiness for mass production. So, this is a pretty lengthy response, but I hope that our long-term commitment to the development of air costs for our air glasses industry. Thank you.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. If you need to withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. This concludes the Q&A. We're going to hand it over to you, Jordan, for closing remarks.

I apologize for the system issue, but as a final note, Eric Lee, our chief IRP officer, will maintain investor marketing activities and continue to attend investor conferences. We'll announce the details as they come about. Thank you, and have a nice day.

This concludes today's conference.

You may now disconnect.