Himax Technologies, Inc.

Ladies and gentlemen, welcome to HyMEX Technologies Incorporation second quarter 2025 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. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Teo, head of IR, PR, and HyMEX. Ms. Teo, please go ahead.

Welcome everyone to the HI-MEC second quarter 2025 earnings call. My name is Karen Tau, head of IRPR at HI-MEC. Joining me today are Jordan Wu, president and chief executive officer, and Jessica Tan, chief financial officer. After the committee's prepared comments, we have allocated time for questions in the Q&A section. If you have not yet received a copy of today's result release, please email hx-ir at hymex.com.tw or himx at mvgroup.us. Access the press release on financial portals or download a copy from HyMEX website at www.hymex.com.tw. Before we begin the formal remarks, I would like to remind everyone There are some new statements in this conference call, including the statement regarding expected future financial results and industry growth, a forward-looking statement that involves a number of risks and uncertainties that could cause actual events or results that differ materially from what's described in this conference call. A list of the risk factors can be found in the company's FDC filing, Form 20-F, the year ended December 31, 2024. in the section entitled Risk Factors may be amended. In February, companies will yield 2024 financials, which were provided in the company's 20F and filed with the SEC on April 2, 2025. The financial information included in this conference call is audited and consolidated and prepared in accordance with IFR's 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 independent auditors, 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 which is the result of new information, future events, or otherwise. On today's call, I will first review the high net confidence daily financial performance for the second quarter of 2025, followed by our third quarter outlook. Jordan will then give an update on the status of our business. And after which, we will take questions. You can submit your questions online through the webcast or by phone. review our financials on an IFRS basis. During the second quarter, broadening U.S. tariff measures continued to intensify global trade tensions, heightening macroeconomic and demand uncertainty. This was compounded further by the abrupt and significant appreciation of the NT dollars against the U.S. dollar during this quarter. Jordan will elaborate on the impact of anti-dollar fluctuations on our financials in a moment. Despite these headwinds, we are pleased to report our Q2 gross margin exceeded the guidance provided on May 8, 2025, while the gross revenue and profit came in within the projected range. Second quarter revenues registered the sequential decline of 0.2%, better than the midpoint of guidance range, which was 5.0% decline to 3.0% increase. The gross margin was 31.2%, outperforming our guidance of around 31%, and improving from 30.5% in the prior quarter, primarily due to favorable problem rates. Total profit per diluted ADS was 9.5 cents, within the guidance range of 8.5 to 11.5 cents. Revenue from large display driver canning at $24.9 million, representing a slide decline of 0.6% from previous quarter. Both mailbox and monitor IT sales declined IT sales outperformed guidance with a single data-sequential increase driven by high assurance to key customers after several subdued cross-quarters. Sales of large family driver IT accounted for 11.6% of total revenue for the quarter compared to 11.6% last quarter and 16.3% a year ago. Revenue from the small and medium-sized display driver segment a sequential decline of 4.0%. However, Q2 automotive driver cells, including both traditional DDIC and TTDI, offer from our guidance of meeting sequential decline, posting only a single digit decrease, quarter over quarter. The sequential decline refers to the combined impact of tariffs and the capturing effect of Chinese automotive subsidy program. Next, we list automotive driver sales for the first half of 2025. They recorded a 3.2% year-over-year increase, indicating resilience to underlying demand despite global softness in automotive sales. Our automotive business comprises DDIC, TDDI, T-Con, and LAIC sales. Meanwhile, children's marginal IT sales outperformed our guidance of the mid-teen sequential decline, showing a slight increase from the prior quarter, mainly driven by rush orders from a leading customer. Tablet driver sales increased as expected, supported by renewed demand from a leading customer, only several quarters of all roster demand. With no immediate size-discurred driver IT segments, accounted for 67.3% of total sales for the quarter compared to the 70.0% in the previous quarter and 66.3% a year ago. Q2 non-driver sales reached $45 million, a 14.7% increase from the previous quarter. The sequential increase was primarily attributable to the increased amount of T-count for automotive and monitor products. Himex continues to hold an undisputed leadership position with the dominant market share in automotive T-count, particularly in solutions featuring local streaming functionality. Our growing pipeline, now exceeding 200 design wings, is poised to transition into mass production over the next few years. T-Con business accounted for over 12% of total sales, with notable contributions for automotive T-Con. Non-driver product accounted for 21.1% of total revenues, as compared to 18.4% in the previous quarter and 7.4% a year ago. Second quarter operating expenses were $48.9 million, an increase of 6.9% from the previous quarter and 3.3% from a year ago. The appreciation of the NT dollar against the US dollar in Q2 was the key factor behind the sequential increase. Similar factors drove the year-over-year increase, though it was partially offset by the decline in employee bonus compensation due to the decline in the annual bonus expenses for the amortized tranches of the previous year's bonuses. the impact of anti-dollar appreciation, second quarter operating expenses were helping remain flat year-over-year. Aimed at ongoing macroeconomic challenges, we remained vigilant in enforcing budget and expense control. Second quarter operating income was $18.1 million, representing an operating margin and 12.2% for the same period last year. Operating profit declined 8.6% sequentially, mainly due to higher operating expenses, partially upset by the interest in growth margin and growth profits. Excluding the impact of NG dollar appreciation on Q2 expenses, operating income increased slightly compared to the previous quarter. Operating profit declined 38.1% year-over-year, primarily due to a lower sales and reduced growth margin. Second quarter FTEX progress was $15.5 million, or $0.095 per diluted 80th, compared to $20.0 million, or $0.114 per diluted 80th last year, and down from $29.6 million, or $0.059 in the same period last year. Turning to the balance sheet, we have $332.8 million of cash, cash equivalent, and our financial assets as of June 13, 2025. This compared to $253.8 million at the same time last year and $201 million a year ago. The sequential increase was mainly driven by strong positive operating cash flow of $50.7 $5 million in the second quarter. Looking ahead to Q3, we anticipate a decline in cash, cash equivalents, and other financial assets, primarily due to a payment of $64.1 million for the annual dividend to shareholders, which was met on July 11. In addition, subject to a final board decision, we would distributed a total of approximately $13.3 million for employee bonus awards at the end of the third quarter, which includes $7.2 million for the immediate, festive portion of this year's award, and $6.1 million for the festive award granted over the past three years. Our quarter and inventory were $134.6 million higher than the $129 million last quarter, but lower than the $203.7 million a year ago. After 10 consecutive quarters of inventory decline from its peak during the industry-wide supply shortage, Q2 inventory has slightly increased, but is now still at a healthy level. as mega-economics uncertainly limit visibility across the ecosystem. We will continue to manage our inventory conservatively. Accounting residual at the end of June 2025 was $219 million, a dry increase from the $217.5 million last quarter, but down from $242.4 million a year ago. DSO was 92 days at the quarter end compared to 91 days last quarter and 99 days a year ago. Second quarter capital expenditures were $4.6 million versus $5.2 million last quarter and $4.6 million a year ago. Second quarter CAPEX-1 was mainly for R&D-related equipment for our IT design business and the construction in progress for the new preschool near our Tynan headquarters built for Ipulini's children. As of June 13, 2025, HEMIS had a 174.3 million ADF outstanding decline from last quarter, And on the fully diluted basis, the total number of ADS outstanding for the second quarter was 174.5 million. Now, turn to our third quarter 2025 guidance. We expect third quarter revenues to decrease 12% to 17% sequentially. Of course, margin is expected to be around 30% depending on prior mix. The third quarter loss attributable to shareholder is estimated to be in the range of 2.0 to 4.0 cents per fully diluted ADS. As we have done historically, we will grant employees annual bonus, including RSUs and cash awards, on or around September 13th this year. Of the quarter finance of the loss per diluted ADS account the effective 2025 annual bonus, which, subject to board approval, is now assumed to be around $7.5 million, out of which $7.2 million was invested and expensed immediately on the grant date. As a reminder, the total annual bonus amount and the immediate amount to vary materially depending on, among other things, our Q4 profit and the final board decision for the total bonus amount and the investment fee. But this is the case for previous years. We expected the annual bonus grant in 2025 to lead to higher third quarter operating expenses compared to the other quarter of the year. In comparison, the annual bonus for the 2024 and 2023 were $9.7 million vested immediately. In providing our Q3 financial guidance, the Q3 expenses related to the employee bonus is estimated to be $8.2 million, representing $4.7 per diluted ADS before tax. Comprised of $7.2 million, the immediately vested portion of this bonus is stated above. and 1.0 million, the amortized portion of the unvested bonuses from previous years. For the sake of completeness, employee bonus expense in each of the last three quarters was also around $0.8 million. I will now turn the call over to Jordan to discuss our Q3 2025 outlook. Jordan, the role is yours.

Thank you, Karen.