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..

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..

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.

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. The remaining stock featured promising customer design-ins and long product lifecycles that lay the groundwork for a more stable outlook in 2024.

Gross margin in 2023 was 27.9%, decreasing from 40.5% in 2022. As a reminder, in Q2, we strategically terminated high cost foundry capacity agreements, leading to a depressed Q2 gross margin of just 21.7%.

Despite the temporary margin contraction, this decision liberates new wafer start from minimum fulfillment constraints, while positioning us to capitalize on the turnaround in demand.

Operating expenses in 2023 were $220.3 million, a decline of 4% from 2022, primarily a result of the lower vested portion of the annual bonus compensation awarded to employee in 2023 and the preceding years, partially offset by increased salary and R&D expenses.

2023 operating income was $43.2 million, or 4.6% of sales, a decrease from $257.6 million, or 21.4% of sales in 2022. Our net profit for 2023 was $50.6 million, or $0.29 diluted ADS, as compared to $237 million or $1.36 per diluted ADS in 2022.

Turning to the balance sheet, we had $206.4 million of cash, cash equivalents and other financial assets as of December 31, 2023. This compares to $229.9 million at the same time last year and $155.4 million a quarter ago.

We achieved a strong positive operating cash flow of $68.7 million for the fourth quarter as a result of substantial reduction in the inventory across major product lines. As of December 31, 2023, we had $40.5 million in long term unsecured loans with $6 million representing the current portion.

Our year-end inventories were $217.3 million, lower than $259.6 million last quarter and $370.9 million at the end of last year. Our inventory level has declined steadily over the last five quarters and reached a healthy level by end of 2023.

Accounts receivable at the end of December 2023 was $235.8 million, a decline from $248.5 million last quarter and down from $261.1 million a year ago. DSO was 91 days at the quarter end as compared to 95 days last quarter and 79 days a year ago.

Fourth quarter capital expenditures were $15.1 million versus $2.6 million last quarter and $2.3 million a year ago. Fourth quarter CapEx was mainly allocated to in house testers for our IC design business in addition to other R&D related equipment. Total capital expenditures for 2023 was $23.4 million, as compared to $11.8 million in 2022.

As of December 31, 2023, Himax has $174.7, million ADS outstanding unchanged from last quarter. On a fully diluted basis, the total number of ads outstanding for the fourth quarter was $175 million. Now turning to our first quarter 2024 guidance. We expect first-quarter revenues to decline 9% to 16% sequentially.

Gross margin is expected to be around 28.5% depending on the final product mix. The first quarter profit attributable to shareholders is estimated to be in the range of $0.02 to $0.05 for fully diluted ADS. I will now turn the call over to Jordan to discuss our Q1 outlook. Jordan, the floor is yours..

including automotive, tablet, notebook and smartphones. As I just covered, we have made great progress in automotive, tablet and notebook markets where we offer comprehensive solutions covering DDIC, Tcon and touch controller. Mass production for most of these new solutions is expected to commence in the second-half of 2024.

In the smartphone AMOLED display driver segment, however, the prevailing slowdown in smartphone market demand has led to adjustments to our initial timeline. Nevertheless, collaborations with customers in Korea and China are ongoing with verification and partnership projects underway, I would like to now turn to our non-driver IC business update.

First for an update on our Tcon business. We expect Q1 Tcon sales to increase by single-digit sequentially, driven by increasing Tcon shipments for automotive displays and OLED displays for tablets. Despite subdued end market demand, we are actively developing next generation Tcon IC for OLED tablets, notebooks, and automotive applications.

The initiative aims to broaden and diversify our product offerings, while also positioning ourselves to capitalize on a market resurgence. Thanks to our cutting edge local dimming technology, Himax is the industry leader in automotive Tcon with an unchallenged leading position of over 100 design-wins projects under our belt.

At CES 2024, we unveiled our latest local dimming Tcon, which features advanced image enhancement with wide color spectrum ensuring exceptional visual quality that supports resolutions of up to 12Kx1K, and exceptional dynamic contrast enhancement tailored to real time display content, all while adhering to power efficiency and stringent automotive safety standards.

The rapid increase in customer adoption reflects the growing traction and trust in our solutions. We expect a decent growth trajectory for the local dimming Tcon over the next few years.

Switching gears to the WiseEye Smart Image Sensing total solution, a cutting edge endpoint AI integration featuring Himax's ultra-low power AI processor, always on CMOS image sensor, and advanced CNN-based AI algorithm.

During CES this year, we highlighted a range of application demonstrations, which have swiftly gained adoption across various domains, featuring our industry leading ultralow power and potent AI capabilities. We achieved noteworthy progress with customers, particularly in implementing WiseEye in smart door locks.

The collaboration with the China smart door lock leader, DESMAN, marks a groundbreaking feature advancement in the door lock industry as our ultralow power WiseEye AI, with remarkably low power consumption of just 1 milliwatt, enables the world's first smart door lock featuring uninterrupted surveillance with 24/7 real time sentry monitoring, while at the same time significantly extending battery life.

We also showcased an adoption of WiseEye in a capsule endoscope, a highly encouraging advancement in the medical area. Our WiseEye AI solution empowers tiny pill-sized capsule endoscopes, which are easy to swallow, facilitating smooth medical examination processes.

The device consumes minimal power to sustain continuous image capture and transmission for up to 12 hours. This creates significantly simplified medical process, which compared -- when compared to conventional procedures, which often involves the use of invasive endoscope tubes.

We are excited about the potential for this transformative development for the healthcare industry and expect to commence production with the customer in 2025. Turning to an update on WiseEye2, our new generation AI processor.

We are honored to report that WiseEye2 was awarded the 2023 Best AI Product Award by EE Awards Asia, further elevating Himax's WiseEye AI prominence in industry.

WiseEye2 is pioneering a new standard in endpoint AI benchmarks, earning recognition for its outstanding AI inference capability, industry leading ultra-low power efficiency, and advanced security features.

In the realm of context aware AI, WiseEye2 facilitates high precision detection with features such as face mesh, facial landmark, hand gesture and human pose and skeleton, which expands the intuitive, user friendly scope of interactive applications in real life, all achieved with minimal power consumption.

Moreover, WiseEye2 streamlines the system integration with a rich set of peripheral interfaces, effectively lowering the system costs for edge application -- appliances by eliminating the need for costly, power-hungry discrete MCUs otherwise required to process various sensor data.

Additionally, WiseEye2 boasts versatile sensor fusion capabilities encompassing image, video, audio, vibration, and thermal inputs.

This enables sophisticated, integral and highly accurate detection with low latency, especially suitable in anomaly detection with timely warnings, making it an ideal solution for a range of industrial applications, notably in automated and unmanned factories.

Alongside our ongoing collaboration with end customers, significant progress is being made in partnerships with major CPU and AP SOC players in preparation for their next generation smart notebooks, AI PCs, surveillance applications, and a host of other endpoint AI applications. We will provide more details as they come about.

Concurrently, to meet various application requirements and context -- and extend market reach we are in collaborations with numerous ecosystem partners and system integration companies offering hands on development tools and rigorous AI models to streamline customer development efforts and reduce cost for their AI product introduction.

The launch of our production ready WiseEye Modules exemplifies this business model. These modules incorporate Himax's low-power CMOS image sensors, WiseEye1 or WiseEye2 AI processor, and versatile AI models from either in house or third party partners.

Meticulously designed with tiny form factors, highly integrated and plug and play characteristics, the modules feature user programmable preloaded AI models to facilitate seamless system integration, lowering the entry barrier and cost for AI development. This initiative is particularly well suited for early-stage market engagement applications.

Furthermore, we continue to collaborate with ecosystem partners to unveil a spectrum of plug and play AI modules that incorporate advanced no code/low code AI solutions. By leveraging their strengths in specific domains and existing channels, these collaborative efforts ensure we can meet diverse development needs for both software and hardware.

Notably, at CES 2024, our partnership with Seeed Studio on its battery-powered endpoint AI vision processing module Grove Vision AI Module V2 significantly underscores our dedication to making AI technology easily accessible.

After years of dedicated efforts to enhance our AI capabilities in ultralow power AI processing and image sensing for endpoint AI applications, we believe that our WiseEye AI business will emerge as a multi-year structure growth driver for Himex. Lastly, I would like to provide an update on our optical product lines.

Himax is a distinguished industry leader with a diverse range of optical and optoelectronics products crucial for building emerging metaverse applications.

We strive to innovate and advance various technologies in this arena, including Wafer Level Optics, 3D Sensing, Liquid Crystal on Silicon, among others, pushing the envelope in a variety of fields.

Our technological expertise and extensive manufacturing experience are evident in our growing clientele for AR/VR goggles and ongoing engineering projects. Now, let's review some recent progress we have made.

First, on our advancement in LCoS, a technology where Himax boasts a decade long expertise and proven track record for shipments for AR goggles with global leading names.

Our latest breakthrough Color Sequential Front-Lit LCoS Microdisplay offers unparalleled industry leading brightness of up to 180,000 nits, providing ultra luminance performance in vibrant RGB displays.

It also features superior optical power efficiency, a compact form factor, and ultra lightweight design, which make it the best choice for the next generation of see-through AR devices.

Currently, we are actively involved in follow up engineering activities in collaboration with key tech players and anticipate significant opportunities in the coming years.

Next, let's discuss the recent introduction of nano-imprint optical film technology in automotive lighting by Himax's subsidiary CMVT in collaboration with Ta Yih Industrial, a global leader in automotive lighting manufacturing.

The state-of-the-art technology was implemented within a leading edge LED Edge-Lit Type automotive lighting, by leveraging our nano imprint optical film side-emitting LED light is reflected or refracted towards the illumination direction of the automotive lamps, ensuring uniformity, minimizing fixture size and enabling precise control of light compared to conventional direct-lit type automotive lighting.

This results in enhanced efficiency, reduced LED usage, and the ability to create versatile patterns at a significantly lower cost. This groundbreaking development unlocks not only extensive visual possibilities for automotive lighting, but also interior light decoration design, as well as related illumination applications.

We will provide more updates as they come about. We believe our optical and opto-electronics technologies as poised to play an important enabling role in developing next generation metaverse applications.

We are committed to advancing this technology suite, collaboratively expanding application possibilities with industry leaders who are deeply devoted to advancing their next generation metaverse related products. For non-driver IC business, we expect revenue to decline single-digits sequentially in the first quarter.

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate your joining today's call and now ready to take questions..

[Operator Instructions] I'm showing no questions at this time. I would now like to turn it back to Jordan Wu for closing remarks..

As a final note, Eric Li, our Chief IR/PR officer, will maintain investor marketing activities and continue to attend investor conferences. We will announce the details as they come about. Thank you and have a nice day..

This concludes today's conference call. Thank you for participating. You may now disconnect..