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.

Uncertainty surrounding tariff policies persisted across the global economy throughout the second quarter and into July. However, starting in August, the U.S. began clarifying its tariff measures toward most of the countries, including major economies such as Japan and the EU. These developments The U.S. government announced plans to impose tariffs of approximately 100% on semiconductor chips imported from companies that do not manufacture in the United States. As the details of the new tariff plan have yet to be released, we are unable to comment further regarding its potential impact at this time. We are closely monitoring the situation and will respond accordingly. It is worth noting that tariffs have not had a significant direct impact on Himex's business, as our IT products are not directly exported to the U.S. Instead, they are integrated into panels or modules by customers outside the United States and they sold globally, including into the U.S. market. Only a negligible portion, about 2%, of high-resist products are shipped directly to the U.S. In the automotive sector, the U.S. recently reached separate agreements with the EU, Japan, and Korea. These tariff agreements among the world's major automotive of this market uncertainty, and trade and shipments among these markets are expected to gradually normalize. Now we stand in this early signs of clarity regarding automotive tariffs, given the timing of the announcements which were made just days prior to this earnings call. situation remains dynamic and subject to further observation. Overall automotive market demand visibility remains low, with customers continuing to adopt a cautious stance by maintaining low inventory levels and delaying new product introductions. As a result, we are maintaining a conservative of strict expense controls for actively reducing procurement costs and enhancing supply flexibility. At the same time, we are accelerating the geographic diversification of our foundry and bigger vendors to address customers' diversified deployment needs stemming from geopolitical considerations. This strategy aims to strengthen our global metric chain's resilience and reduce risks associated with regional concentration. In the automotive sector, we remain optimistic about our longer business outlook, primarily driven by the continuous upgrade of smart topics, where displays serve as a key component fueling market growth. With nearly two decades of dedicated experience in the automotive field, HIMX offers the industry's most advanced and comprehensive automotive display IC solutions, spanning LCD to OLED technologies. HIMX holds the number one global market share across all segments of automotive display ICs, with an overwhelming lead over catalytics. Looking ahead, we expect continued growth in automotive TDDI and T-Hunt technologies, both of which are relatively new and advanced display solutions for vehicles. To date, these technologies have been successfully designed in 200 projects worldwide, with just approximately one-third already in mass production, and a remainder expected to enter mass production. within the next few years. In the area of traditional automotive DDIC, although DDICs have gradually been replaced by TDDI in panels with touch functionality, traditional DDICs remain essential for applications such as dashboard, SUVs, and rear and side view mirrors. which do not require touch integration. In addition, Timex has spent years cultivating its automotive OLED business in close collaboration with leading panel makers. The number of new project engagements is rising rapidly and starting in 2037, automotive OLED related growth momentum is expected to accelerate significantly. making it one of our key long-term revenue drivers. Despite limited visibility to the second half of the year, the recent fabrication of carry policies and continued low inventory levels as panel customers provide some positive signals. We were remain prudent in navigating market dynamics by continuing to closely monitor customer demand. Through all this ongoing macroeconomic uncertainty, we remain committed to expanding beyond display ICs into new business areas characterized by high growth potential, high IT value, and high technological barriers. Areas expected to drive a long-term growth Timex has been deeply engaged in this field for one or two decades, establishing significant technical barriers and securing a robust portfolio of key patents. As all these efforts begin to bear fruit, they are expected to inject strong momentum into future operations. In the Wi-Fi AI domain, we continue to collaborate with several leading notebook brands, such as Dell and Acer, achieving significant results. We expect this growth to continue over the coming years by adding more leading notebook customers and introducing further AI features to the notebook. In addition, HIMAX has made both technological and marketplace applications, such as small downloads, power bank recognition, and smart home, jointly developing unprecedented and innovative AI applications with top-tier global customers. These applications are mostly battery-powered, showcasing a wide-size unique advantage in ultra-low-power computing. A recent major application addition is in smart glasses, where Wi-Fi has gained strong design interaction due to the stringent power efficiency requirements of smart glasses. Looking ahead, the Wi-Fi business is entering the phase of rapid growth after years of customer of our key growth drivers. In the field of Copec Optics or PTO, HIMAX's proprietary WLO technology plays a critical role. Together with our partner, Formsy, we have achieved significant breakthroughs in silicon photonics technology, with the first generation solution being validated by our anchor customers, We are working toward the goal of entering mass production in 2036. Meanwhile, Timex and Fossey are collaborating with several heavyweight customers and partners to jointly develop future generation high-speed optical transmission technologies to meet the explosive bandwidth demands of HPC and AI applications. while also helping to address the pain point of overheating associated with high-speed transmission. Turning to smart glasses, after years of lukewarm consumer reception, smart glasses are getting extraordinary market attention of late and becoming a segment of strategic importance for IMAX. With the adoption of generative AI, and large language models, AR and AI glasses are widely expected by the industry to become the next breakout market. Numerous world-class hyperscalers and specialized smart glasses developers from around the globe are actively investing in the development of new smart glasses. China is leading the way in terms of number of players. Himex stands out as one of the few companies in the industry to possess three critical enabling technologies for smart glasses, namely ultra-low power, intelligent sensing, micro-display, and nano-optics. a unique competitive advantage in this emerging field. In intelligent senses, Timex's Wi-Fi AI delivers all-day ultra-low-power contextual awareness, which averages power consumption of just a few nanowatts. It significantly enhances the interactivity and perception of smart glasses while preserving battery life and data privacy. The technology has been widely adopted and successfully integrated into the next generation smart glasses of multiple customers. In micro-display, HiMetris' latest round-the-ear micro-display features 350,000 nits of brightness, exceptional optical power efficiency, and outstanding image quality. or in an extremely compact and lightweight form factor. It is considered the most commercially viable solution closest to the ideal model display for see-through AI glasses. Since its debut at Display Week 2025, the module has drawn strong attention and is soon entering sampling stages with multiple customers. In the field of nano optics, Hymen offers proprietary WO technology for advanced nano optical boundary service to selected customers. Developing web-guide solutions which can significantly enhance both flash transmission and display efficiency of air glasses Looking ahead, we expect revenues from AR and AR glasses related applications to grow substantially over the next few years, becoming a key driver of the company's need to long-term growth. Lastly, and before I get into comments on specific sectors, regarding foreign exchange, Oral Himex is a Taiwan-based company. our financial statements are US dollar dominated. Since both of our revenue and cost of good sales are US dollars, this provides a natural hedge for high-method trade activities. Additionally, a portion of our operating expenses are also US dollars, offering further natural hedging. The non-USB denominated operating expenses primarily include employee salaries and utility costs. Other non-EU dollar expenses are mainly corporate income tax. Overall, the impact of currency fluctuations or high-maxes financials is relatively limited. Based on internal estimates and at around current revenue levels, a 1% appreciation of the ND dollar against the U.S. dollar will reduce operating margin by approximately 0.5%. IMAX's third quarter financial guidance is calculated based on 29.4 ND dollar against the U.S. dollar, which is equivalent to the daily average of the quarter after the day before the NA score. With that, I will now begin with an update of the large-panel DriveIC business. In Q3, large-display DriveIC sales are expected to decline double-digit sequentially. Amid the volatile macro environment, most panel customers demand cautions, adhering to a make-to-order model, and maintaining minimum coverage in response to a murky demand outlook. The absence of traditional seasonal shortage momentum, coupled with customers pulling forward purchases in previous quarters, is expected to drive declines across all three product lines in the large panel drive IT sector for Q3. In the novel sector, we continue to focus on the growing trend among premium models to adopt OLED displays and advanced touch features. This shift is triggered in part by the rise of AI PCs and increasing demand for more interactive technologies that enhance user experience, boost productivity, and support creative applications. Hamas is well positioned to capitalize and OLED notebooks, including EDRC, GCON, touch controllers, and TDDI. In addition, we are expanding our high-speed interface product portfolio to support faster data transmission, low latency, and improve power efficiency, features that are critical for next generation displays. Turning to the small and medium-sized display driver In Q3, small and medium-sized display driver IC business is expected to decline single digit from the last quarter. Q3 automotive driver IC sales, including traditional DDIC, are set to decline slightly quarter over quarter as customers adopt a cautious stance, delaying orders amid ongoing tariffs negotiations. Despite near-term headwinds, global adoption of automotive DTTI continues to expand, fueled by growing demand for intuitive, interactive, and cost-effective touch features in modern vehicles. HIMAX remains the leader in its market, with cumulative shipments already exceeding 100 million units, representing a long-shared world above. 50%, far outpacing those of our competitors. To date, we have secured a raw-fiber design-in project across a wide range of global automotive brands and tier ones, spanning entry level to high-end vehicle models. Supported by a continuous flow of new project pipelines and widespread design wins, we are well positioned to maintain our growth momentum and reinforce our leadership in the market. While traditional automotive DBIT sales declined in Q3 due to partial replacement by DBDI, the transition remains gradual. As many automotive displays such as dashboard, HUDs, and rear and side view mirrors do not require touch functionality and typically have long product life cycles. Himex holds a solid 40% market share in the traditional DDIC and remains the go-to supplier for both legacy and next-generation automotive display applications. Himex also continues to lead in automotive display IT innovation by pioneering solutions across a wide range of panel types, addressing diverse design needs and cost considerations. For ultra-large touch displays, we offer LTDI, where we led the industry by introducing the technology and commencing its mass production in Q3, 2033. Additional LTDI projects With MacPro leading, global brands are on track to enter mass production in the third quarter, with more programs expected to follow as we move into 2026. For smaller displays with tight form factor and budget requirements, we provide single chip designs that combine TDI and Novo Dimitrica. This enables Advanced level dimming in small size displays reduces overall system costs and improves power efficiency. Meanwhile, Timex is recognized for its dominance in level dimming technology, which I will elaborate on in a few minutes. We continue to lead the global automotive industry and even higher market share in low-density cars. Moving to smartphone and tablet IT sales, we expect revenues for both segments to decline quarter over quarter as customers pull forward purchases in prior quarters. Excuse me. Next for an update on our OLED business. In the automotive OLED market, we have established sufficient partnerships with leading panel makers across Korea, China, and Japan. As older technology gains broader adoption for premium vehicles, Himex is well positioned to become the partner of choice, leveraging our nearly two decades of experience and strong foothold in the automotive display market. Capitalizing on our first mover advantage, we offer a comprehensive suite of solutions, including DDIC, TCAM, and on-sale touch controllers. Our automotive OLED driver and TCAM solutions became production for EVs of leading car makers a few years ago. We now also offer standard ICs ready for broader deployment. Imperial, we are collaborating with leading panel makers of custom ASIC developments. In addition, our advanced OLED on-sail touch control technology features an industry-leading signal-to-noise ratio, ensuring reliable performance even in challenging conditions such as glass use or wet features. The OLED on-sale touch ICs entered mass production in 2024, and are being increasingly adopted by major global automotive brands for their upcoming car models. Looking ahead, we expect OLED channel adoption in automotive displays to accelerate, starting in 2034. unlocking a new growth engine that further strengthens our leadership in the automotive display market. We have also expanded our comprehensive OLED portfolio into the tablet and notebook markets, covering DDIC, TCAM, and touch controllers. Through partnerships with leading OLED panel makers in Korea and China, several new projects have slated to enter mass production with top-tier brands later this year. Meanwhile, we are developing new technologies for value-added features such as active stylus, virtual slim, bezel, design, and gaming models to further differentiate our products and reinforce our competitive edge. In the smartphone open market, We are making solid progress in our collaborations with customers in Korea and China, with mass production of track starting the end of this year. I would like to now turn to our non-trivial IT business update, where we expect the third quarter revenue to decline double digit sequentially. For an update on our TCAN business, we anticipate Q3 TCAN sales to decrease by double digits sequentially, but increase by single digits year over year. The zero decline is primarily a result of customers putting forward inventory purchases of TCAN for monitored notebook and TV products during the prior quarters, against the backdrop In automotive, our Q3 sales are set to increase by single digits sequentially, fueled by a strong pipeline of over 200 design win projects gradually entering mass production. We believe our automotive teacup business is well positioned for sustained growth in the years ahead. We continue to lead the industry in the innovation of automotive T-Cart technology. Our new generation lower team in T-Cart offer advanced features such as edge sharpness and high dynamic range, ideal for customers looking to upgrade their displays for better panel performance. Switching gears to Wi-Sci, our actual power AI data institution. The cutting edge M4 AI integration features industry-leading actual power AI projects, always-on synonyming sensors, and CLM-based AI algorithms at its core. Amid the rapidly evolving AI landscape, Wi-Sci AI stands out by delivering on-device AI inferencing with industry-leading ultra-low power, merely a few milliwatts, alongside a compact form factor and industrial-grade security, enabling AI functionality in battery-powered M4 devices. With our long-sensing and intelligent low-power perceptual input, Wi-Fi serves as an ideal front-end for LLMs, supporting multi-modal AI that goes beyond vision, language, audio, and intent, to include rich contextual awareness, such as motion, proximity, and behavior, for smarter, more responsive user experiences. including notebooks, tablet, surveillance systems, access control, smart home, and more recently smart glasses and many others. Following our major design win with Dell, we are pleased to report that Acer has also adopted Wi-Sci for its latest AIPC. Wi-Sci is now being integrated by other leading notebook vendors, with some entry production later this year and expanding further into 2026. Wi-Sci's advanced local inferencing capability goes beyond human presence detection supporting a broad set of intelligent features, including proximity detection and presence awareness alerts. Posture reminders and automatic cursor teleporting to the display the user is viewing. In the surveillance domain, Wi-Fi AI enhances security systems by combining two key capabilities namely accurate human-object distinction and event-driven activation. This significantly reduces force triggers, considering power and minimizing system overhead. After forming widely used conventional PIR sensors that often misidentify motion In addition to the China market where treatments to leading smart door lock vendors are already underway, we are now partnering with leading door lock vendors worldwide to introduce advanced AI features, such as biometric access, parcel recognition, and anti-pinch protection. With several devices slated for mass production, starting 2026. Recently, we achieved another compelling demonstration of our ultra-low-power Wi-Fi AI for motion sensing through our collaboration with Raboni, marked by the launch of the B-Boni AI platform. Built on a six-axis gyroscope, B-Boni AI empowers wearables on device capabilities, such as motion analysis, posture recognition, and behavior interpretation, all delivered with low latency, exceptional energy efficiency, and a privacy-first design. With Wi-Fi AI, the deep learning AI platform can also interface with aerial applications further expanding its ability to perceive, understand, and interact with complex real-world scenarios. This enables a wide range of real-world applications, including smart healthcare, sports, education, and interactive learning.

Next, for an upgrade

of our Wi-Fi module business, which integrates HIMAX's ultra-low-power image sensor AI processor and pre-trained low-code slash low-code AI algorithm, enabling easy deployment across a broad spectrum of applications. HIMAX's biometric authentication portfolio comprises one of the world's strictest data privacy laws, ensuring strong privacy protection and enabling adoption in highly regulated markets. Our program module has attracted strong interest across multiple industries, rapidly securing design wins in areas such as smart access, workforce management, with some projects scheduled to enter mass production in 2026. To address the growing demand for more flexible access control, we have upgraded the one-side pump vent suite with multi-modal authentication capabilities, combining pump vent and facial recognition to enable multi-layer biometric verification, delivering stronger security and greater user convenience. In the field of AI services for AR and AI glasses, we are excited to see YSI AI's growing adoption and active engineering engagements across major tech giants, traditional ODMs, brands, and startups. Smart glasses makers are leveraging YSI to enable instant responsiveness for a wide range of AI applications, while ensuring extended battery life. More specifically, YSI empowers both outward and inward vision sensing capabilities. Outward vision sensing enables environmental awareness and real-time analysis, such as object recognition, navigation assistance, and environmental mapping, significantly enhancing AI interactivity while consuming just a few milliwatts of power concurrently for inward vision sensing. Wide-eye, trait, eye movements, gaze direction, pupil size, and glance to support intuitive user interaction. Multiple projects are underway for customers' next-generation AR and AI glasses. Further eradicating Wi-Fi as the preferred optional power AI solution for emerging wearable applications requiring real-time user-environment interaction. Moving on to our latest advancements in air-coated micro-display technology. Following the debut of our proprietary dual edge from LEED AirCore micro display at Display Week this May, customers across the board are eagerly anticipating samples of our newly introduced AirCore solution, targeted for release in September for their new see-through AR glasses project. This industry-leading solution integrates both the illumination optics and L-cos panel into an exceptionally compact form factor as small as 0.09 cc and weighing just 0.2 grams. While achieving up to 350,000 nits of brightness at one lumen output at just The luminous breakthrough ensures excellent eye-level visibility, even in bright ambient conditions. While the actual compact form factor makes sleek everyday AR glasses possible, the collaborations with leading global tech companies and specialized smart glasses vendors continue to progress steadily. We'll provide more updates as they come about. That concludes my report for this quarter. Thank you for your interest in IMAX. We appreciate you joining today's call and are now ready to take questions.

Yes, thank you, Jordan. And ladies and gentlemen, we are now in question and answer session. If you would like to ask a question, please press star key and number one on your keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, you may press star key and number two to cancel the question. Thank you. And in addition to submitting questions via phone, you can also submit questions through the webcast where the chat box is available on the right-hand side of the screen. Thank you. Now please press star key and number one on your keypad if you would like to ask the question. And you may also submit questions through the webcast screen. Thank you. We are now in question and answer session. If you would like to ask the question, please press star key and number one on your keypad.

Thank you.

I actually have a couple of questions related to our CPO status. The questions are about, you know, some updates from last quarter. mass production timetable, next generation progress, sales contribution, et cetera. So I think I will combine the questions together and provide the answer together. So in short, the project is on track and we really don't have a whole lot of progress or update. So together with our partner, 4C, we are focused on getting the first generation product validated. So 2025 this year will be a year for engineering validation with only sample shipments for us. So the sample shipments certainly in terms of revenue contribution will be rather limited. And in all likelihood mass production will commence next year. But at this point we will not comment on exactly when in 2036. So as far as the new generation is concerned, we are actually developing more than one generation of future products. I mean, obviously I cannot give details of the future generation design. What I can say is that these products, when successful, will represent much higher by revenue for us on a per unit basis or per FAU basis. Because our new design will cover a much wider scope of optics inside the FAU. While at the same time enable higher transmission bandwidth and lower the overall module cost for our customers. I've actually commented on the revenue potential in my last 102 earnings call. So I think I will just quickly go through that again. So again, this year is next year, 2026 is likely to be the first year of mass production. But it's still too early to give a revenue indication for the year because as I just said, exactly when MP will commence is yet to be determined by our customer. I've said in the Q&A of last earnings call that our annualized CPO revenue could reach over $100 million in so-called early stage of mass production. And I'm still holding the same view. So by early stage, I'm thinking the early stage of MP when only maybe mostly AI switches of data center are equipped with CPO. And naturally, as the technology is more proven, CPO will be adopted by more end customers and penetrate further to also cover XPUs for AI data center. Now, if you look further ahead, I believe automotive and humanoid robot, you know, automotive and humanoid robot are two likely new major markets where advanced high bandwidth AI are also needed. And because our WL optics is a critical element of CPO, we are seeing this business as a major game changer for IMAX. So it's something we were certainly committed to for many, many years. So regarding question when this world starts ramping up, to me this is not really a question of whether or even when it will happen, but rather how fast and how much the city of technology will penetrate. And we believe with all these benefits, like raising transmission bandwidth and substantially reducing power consumption of data transmission, you know, and all at, you know, pretty low cost compared to those of a complex AI system. The CPU technology has the potential of ramping right quickly with high market penetration. But ultimately, this is a decision, again, to be made by our end customers. So what we can do is get ourselves prepared for any ramping plan and equally important, aggressively push the boundaries of the technology. And I guess lastly, I think it's important to point out that the progress of collaboration with our customers are not affected and not deterred by the preventive macro accident or the Paris situation. So our customer slash partner is determined and focused as ever to push this forward as planned. So again, that's my answer to a few questions related to CPL. There's actually another question about, again, about CTO news. It's called the number of planned CTO product generations and whether they are currently in preparation for validation. The validation is now being focused on the current generation only, with the next generation going through design with collaboration with 4C, the design and sampling stage. And the number of planned CPO product generation. I'm not sure exactly what this means. Actually, I can tell you there's a longer term, rather fundamental and important of TPO technology that we are working on, which is successful, could cover a few generations of products. If it's successful, it's going to be a major breakthrough for what we are doing right now. But, I mean, obviously I'm not allowed to disclose too much. So I guess there's this current generation, which is, I think, you know, validation, you know, improvement, and so on at this stage. And we are in that for mass production next year. And there's the next generation with aspects coming from the customers, collaboration, close collaboration with ourselves and Tulsi. And there are future, for future generation, further ahead, technology developments that could, fundamentally improve the cost and efficiency of CPL and that can cover several generations to come if successful. Why is Hivex lose money in Q3? We certainly lost, based on our guidance, we are projected to lose two to four cents a share in Q3. And as I just mentioned, I prepared remarks. That is because of our pretty peculiar way of expensing our employee bonuses. And we have been doing that almost 20 years ago, ever since we got this deal in 2026. And so I'm sure for those analysts or investors following us are already familiar with this. So in short, what happens is our employee bonus or I think expenses in every year will reach a peak in Q3 and with much, much smaller amount during Q1, Q2 and Q4. And it has been a pattern for 20 years also. because of our approach of issuing employee bonuses whereby we basically announce employee bonus every year at the end of September or 30th of September. and we are strictly following accounting rules. I wish we can, based on our accounting practice, we can lower our RSU expenses, even if distributed across four seasons, but we are not allowed to. So if you take away the employee bonus, actually, we are going to turn, we can actually turn we are projecting also positive cash flow during Q3. But that's just the way we do our accounting. But I mean, naturally, we are doing well in Q3 overall. As I just mentioned, the automotive, non-automotive, all sectors, limited visibility, interior, whatnot. I'm not going to repeat that. But there's a particular reason for our Q3 projected loss. So I guess there is no further question at this number on my list. So as a final note, Karen, our head of IRPR, will maintain investor marketing activities and continue to attend investor conferences. And we will announce the details as they come about. Thank you.