Himax Technologies, Inc. (NASDAQ:HIMX) Q4 2023 Earnings Call Transcript

Himax Technologies, Inc. (NASDAQ:HIMX) Q4 2023 Earnings Call Transcript February 6, 2024

Himax Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Himax Technologies Fourth Quarter and Full-Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over your host, Mr. Mark Schwalenberg from MZ Group. Please go ahead.

Mark Schwalenberg: Welcome, everyone to the Himax’s fourth quarter and full-year 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 IR/PR Officer. After the company’s prepared remarks, we have allocated time for questions in a Q&A session. If you’ve not yet received a copy of today’s results release, please email himx@mzgroup.us. Access the press release on financial portals, or download a copy from Himax’s website at www.himax.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 factors can be found in the company’s SEC filings, Form 20-F 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 20-F 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 is 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 will now like to turn the call over to Mr. Eric Li. Eric, the floor is yours.

Eric Li: Thank you, Mark, and thank you, everyone, for joining us. My name is Eric Li, Chief IR/PR Officer at Himax. On today’s call, I will first review the Himax consolidated finance performance for the fourth quarter and full-year 2023, followed by our first quarter 2024 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 IFRS basis. We are delighted to announce that Q4 2023 revenues and profits both surpassed the guidance, while gross margin was in line with the guidance issued on November 9, 2023. This was primarily attributable to better-than-expected order momentum in major product categories, as well as cost improvements. Fourth quarter revenues registered $227.7 million, a decrease of 4.5% sequentially, but exceeding our guidance range of 5% to 11% decline.

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Q&A Session

Gross margin came in at 30.3% within our guidance range of around 30%, but down from 31.4% last quarter. Q4 profit per diluted ADS was $0.135, surpassing the guidance range of $0.09 to $0.13. Revenue from large display driver came in at $33.6 million, reflecting a sequential decrease of 23.1%. The decline was predominantly driven by prevailing weak macroeconomic conditions amidst the traditional peak seasonality in the fourth quarter. Our TV IC sales declined mid-teens sequentially due to ongoing strict production and inventory control measures of leading customers. Monitors and notebook IC sales both declined double digit quarter-over-quarter caused by slowdown in order momentum as customers put forward their inventory purchases during prior quarter.

Sales of large panel driver ICs accounted for 14.8% of total revenue for the quarter, compared to 18.3% last quarter and 16.6% a year ago. Exceeding the guidance range, small and medium-sized display driver segment revenue reached $163.1 million, a sequential increase of 1.2%. This was underpinned by outperforming sales, particularly in TDDI products for automotive and tablet market. Q4 automotive driver sales, combining both traditional DDIC and TDDI experienced a slight decline following robust order restocking in both during the third quarter. However, Q4 automotive TDDI sales still increased high-teens sequentially, bucking the industry downturn, thanks to our solid pipeline of the design win projects. Meanwhile, our industrial leading, cutting edge automotive LTDI products started mass production for Geely Auto’s NEV in the third quarter of 2023.

Taken together, this not only solidifies our leadership in next-generation automotive display, but also reflects the robust market demand for advanced display technology. Jordan will elaborate in a few minutes. Fourth quarter automotive business, encompassing driver, automotive Tcon and OLED sales continued to be our largest revenue contributor at over 45% of total sales. For tablet Q4 sales grew high-teens sequentially exceeding our guidance, driven by successful new product launches by our customers during the quarter. Conversely, smartphone driver sales declined as expected amidst a subdued festival season characterized by sluggish demand. The small and the medium sized driver IC segment accounted for 71.6% of total sales for the quarter, compared to 67.6% in the previous quarter and a year ago.

Fourth quarter non-driver sales also exceeded guidance with revenue of $31 million, but declined 8.2% from a quarter ago. The better-than-expected performance is attributable to resurgence in orders from our Tcon product line. Adoption of our automotive local dimming Tcon is rapidly expanding as evidenced by hundreds of projects awards across the board. This paves the way for robust growth in coming years, mirroring the success seen in our automotive TDDI. Jordan will share some insights shortly. Non-driver products accounted for 13.6% of total revenues and compared to 14.1% in the previous quarter and 15.8% a year ago. Fourth quarter operating expenses were $52.3 million, a decrease of 17.9% of the previous quarter and roughly flat compared to a year ago.

The substantial sequential decrease was caused mainly by decreased annual bonus and salary expenses, particularly offset by an increase in R&D expenses. Our standard practice of granting annual bonuses, including cash and RSUs at the end of September each year can lead to higher IFRS operating expenses in the third quarter, compared to other quarters of the year. Amidst the prevailing macroeconomic headwinds, we are currently exercising strict budget and expense control with full-year 2023 OpEx declined 4%, compared to the year before. Fourth quarter operating income was $16.7 million, or 7.3% of sales, compared to 10.5% of sales for the same period last year and 4.6% of sales last quarter. The sequential increase was primarily a result of lower operating expenses for lower annual bonus compensation partially offset by decreased sales and the gross margin in fourth quarter.

The year-over-year decrease was primarily a result of lower sales and the gross margin, compared to the same period last year. Fourth quarter after tax profit was $23.6 million or $0.135 per diluted ADS, compared to $11.2 million or $0.064 per diluted ADS last quarter and $42.2 million or $0.241 in the same period last year. It’s worth noting that the favorable after tax profit exceeding operating income reflects the positive tax adjustment made to rectify overestimate tax expenses for preceding quarter this year. As a reminder and for the purpose of year-over-year comparisons, we made a divestiture of long-term assets during Q4 2022 resulting in a non-operating income of around $11 million on an after tax basis. Now let’s quickly review the financial performance for the full-year 2023.

Revenues totaled $945.4 million, reflecting 21.3% decline, compared to 2022. Persistent subdued global demand coupled with the looming recession concerns presented significant challenges to our operations throughout 2023. This market dynamics adversely affected both demand and procurement process of panel customers, particularly in the realm of customers in electronics. Yet our optimism in the automotive business remain steadfast as automotive TDDI sales witnessed a remarkable surge of over 50%, reflecting the resilience and potential of our largest business segment. Revenue from large panel display drivers totaled $175.7 million in 2023, marking a decrease of 33.5% year-over-year and representing 18.6% of total sales, as compared to 22% in 2022.

Small and medium sized driver sales totaled $629.2 million, reflecting a decrease of 19.2% year-over-year and accounting for 66.5% of our total revenues as compared to 64.8% in 2022. Non-driver product sales totaled $140.5 million, a decrease of 11.2% year-over-year and representing 14.9% of our total sales, as compared to 13.2% a year ago. Inventory management also presented unique challenges for us throughout this sluggish demand environment this year. To navigate these circumstances our primary objectives were the strategic delpletion of excess inventory, while also technically controlling our wafer stocks. Following quarters of aggressive destocking, which often involved sacrificing short-term gross margin, inventory decreased to near historical norm by end of 2023.