ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) Q1 2022 Results Conference Call May 5, 2022 3:00 AM ET Company Participants Dr. G.S. Shen - Technology Strategy and IR S.J. Cheng - Chairman and President Silvia Su - VP, Finance and Accounting Management Center Jesse Huang - Spokesperson and SVP, Strategy and IR Conference Call Participants Jerry Su - Credit Suisse Stanley Wang - SinoPac Securities Operator Greetings. And welcome to the ChipMOS First Quarter 2022 Results Conference Call. [Operator Instructions] I wou ...

Q1'22 Financial Performance - Revenue reached NT$6,725.2 million, a decrease of 1.0% QoQ but an increase of 4.0% YoY[7] - Gross margin was 25.0%, down 1.0 percentage points QoQ but up 0.8 percentage points YoY[7] - Profit attributable to the company was NT$1,224.7 million[20] - EPS attributable to the company - Basic was NT$1.68[20] - Capital Expenditures (CapEx) amounted to NT$624.1 million[30] - Depreciation reached NT$1,188.2 million[30] Revenue Breakdown - Memory revenue accounted for 40.7% of total revenue in Q1'22, up 0.7% QoQ but down 2.4% YoY[14] - Smart Mobile contributed 30.7% to application revenue[17] - TV contributed 17% to application revenue[17] - Computing contributed 9.6% to application revenue[17] - Auto/Industrial contributed 16.7% to application revenue[17] - Consumer contributed 26% to application revenue[17] Q2'22 Business Outlook - The company anticipates healthy demand to continue in Q2, with cautious improvement[34] - DRAM momentum remains healthy[34] - Flash memory is experiencing customer re-stocking and healthy demand momentum[34] - OLED and automotive panel demand remains firm[35]

PART I [Key Information](index=5&type=section&id=Item%203.%20Key%20Information) This section outlines the principal risks faced by the company, categorized into economic, industry, business, operational country, and security-related factors, highlighting dependencies on the cyclical semiconductor market, key customers, and geopolitical stability in Taiwan, and specifies the exchange rate of **NT$27.74 to US$1.00** used for financial translations in the report [Risks Relating to Economic Conditions and the Financial Markets](index=5&type=section&id=Risks%20Relating%20to%20Economic%20Conditions%20and%20the%20Financial%20Markets) The company's business is susceptible to disruptions in global credit and financial markets, trade tensions, and the COVID-19 pandemic, which can lead to diminished liquidity, reduced consumer confidence, and postponed customer orders, materially and adversely affecting business and operational results - Global economic uncertainties, including trade tensions and the COVID-19 pandemic, pose a risk by potentially causing customers to cancel, decrease, or delay orders, which directly impacts inventory management and financial stability[14](index=14&type=chunk) [Risks Relating to Our Industry](index=5&type=section&id=Risks%20Relating%20to%20Our%20Industry) The company operates within the highly cyclical semiconductor industry, making its revenue and earnings volatile, with key industry risks including significant downturns, deterioration in end-user application markets, declining average selling prices for services, and a potential slowdown in outsourcing by integrated device manufacturers (IDMs) - The business is highly dependent on the cyclical nature of the semiconductor industry; any downturn can significantly reduce demand for assembly and testing services, adversely affecting results[15](index=15&type=chunk) - A significant portion of revenue is indirectly generated from integrated device manufacturers (IDMs) and fabless companies outsourcing their assembly and testing needs. A reversal or slowdown in this outsourcing trend could reduce demand for the company's services[18](index=18&type=chunk) [Risks Relating to Our Business](index=6&type=section&id=Risks%20Relating%20to%20Our%20Business) Key business risks include intense competition in the semiconductor assembly and testing markets, high dependence on the volatile memory products market, and reliance on a small group of key customers, with the company's **high fixed costs** necessitating high capacity utilization to maintain profitability, alongside risks related to significant indebtedness, operational complexities, capital planning challenges, and potential intellectual property disputes - The company is highly dependent on a small group of customers, with the top five collectively accounting for **57% of revenue** in 2021. The loss of any key customer could materially reduce revenue[27](index=27&type=chunk) - Operations are characterized by **high fixed costs**. Profitability is highly dependent on achieving high capacity utilization rates, which have fluctuated significantly with market demand[29](index=29&type=chunk) - As of December 31, 2021, the company had approximately **NT$9,413 million (US$339 million)** in outstanding long-term indebtedness, which poses risks such as limiting available cash flow for operations and capital expenditures[22](index=22&type=chunk) [Risks Relating to Countries in Which We Conduct Operations](index=13&type=section&id=Risks%20Relating%20to%20Countries%20in%20Which%20We%20Conduct%20Operations) The company faces significant risks related to its operational locations, primarily Taiwan and its affiliation with Unimos Shanghai in Mainland China, including regulatory risks from ROC laws limiting technology cooperation with PRC entities, substantial political risk due to strained relations between the ROC and PRC, vulnerability to natural disasters like earthquakes and typhoons in Taiwan, and the ongoing COVID-19 pandemic presenting a material risk to operations and supply chains - The company's principal facilities are in Taiwan, exposing it to substantial political risk associated with the strained relations between the ROC and the PRC, which could negatively affect business and share price[64](index=64&type=chunk) - Operations are vulnerable to natural disasters such as earthquakes, typhoons, and droughts in Taiwan, which could disrupt production, interrupt utility supplies, and impact both the company and its local suppliers and customers[67](index=67&type=chunk)[68](index=68&type=chunk) - The COVID-19 pandemic poses a material risk, potentially causing disruptions in the workforce, supply chain, and customer demand, which could negatively impact operating results for fiscal year 2022[61](index=61&type=chunk)[63](index=63&type=chunk) [Risks Relating to Our Common Shares or ADSs](index=16&type=section&id=Risks%20Relating%20to%20Our%20Common%20Shares%20or%20ADSs) This subsection details risks for investors in the company's common shares and American Depositary Shares (ADSs), including the potential for delisting if the Public Company Accounting Oversight Board (PCAOB) cannot fully inspect the audit work on the company's PRC associate, market price volatility, and limited voting rights for ADS holders compared to common shareholders, along with restrictions on depositing shares into the ADR facility and limitations on ADS holders' participation in rights offerings - The inability of the PCAOB to fully inspect the audit work on the company's PRC associate could lead to a loss of investor confidence and potential delisting of ADSs from NASDAQ under the Holding Foreign Companies Accountable Act (HFCAA)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - Holders of ADSs have different voting rights than common shareholders. If an ADS holder does not provide timely voting instructions, the depositary may give a discretionary proxy to a person designated by the company, which may not be in the holder's interest[91](index=91&type=chunk) - The ability to deposit common shares into the ADR facility is restricted by ROC law, which may adversely affect the liquidity and price of the ADSs[96](index=96&type=chunk) - The exchange rate used for translating New Taiwan dollars (NT$) to US dollars (US$) for this report is **NT$27.74 to US$1.00**, based on the noon buying rate on December 30, 2021[11](index=11&type=chunk) [Information on the Company](index=20&type=section&id=Item%204.%20Information%20on%20the%20Company) ChipMOS is a **leading independent provider** of semiconductor assembly and testing services, specializing in LCD, OLED, and other display panel driver semiconductors, as well as memory and logic/mixed-signal products, leveraging its strategic Taiwan location, engineering expertise, and vertically integrated services to serve a global customer base, with a strategy focused on growth segments, continuous R&D investment in advanced technologies, and maintaining strong customer relationships, while operating facilities in Hsinchu and Tainan, Taiwan, and committed to high-quality production, environmental sustainability, and robust corporate governance - The company is a **leading independent provider** of testing and assembly services for LCD, OLED, and other display panel driver semiconductors, as well as advanced memory and logic/mixed-signal products[104](index=104&type=chunk) | Service Segment | 2019 Revenue % | 2020 Revenue % | 2021 Revenue % | | :--- | :--- | :--- | :--- | | Testing | 20.9% | 21.7% | 21.5% | | Assembly | 25.3% | 26.1% | 29.1% | | LCD, OLED, etc. Assembly & Testing | 34.1% | 30.5% | 30.0% | | Bumping | 19.7% | 21.7% | 19.4% | - The company's strategy is to reinforce its market position by focusing on high-growth semiconductor segments, investing in R&D for advanced technologies, leveraging its strong presence in Taiwan, expanding vertically integrated services, and securing long-term agreements with key customers[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk)[131](index=131&type=chunk)[133](index=133&type=chunk)[135](index=135&type=chunk) [Unresolved Staff Comments](index=45&type=section&id=Item%204A.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - Not applicable[241](index=241&type=chunk) [Operating and Financial Review and Prospects](index=45&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) In fiscal year 2021, the company's revenue increased by **19%** to **NT$27.4 billion (US$988 million)**, driven by strong customer demand and higher average selling prices across all segments, with gross profit growing significantly and the gross margin improving to **26.5%** from **21.9%** in 2020, a **4.6pp** increase, consequently, profit for the year attributable to equity holders **more than doubled** to **NT$4.9 billion (US$177 million)**, highlighting the capital-intensive nature of the business and its dependence on high capacity utilization, while maintaining liquidity through cash from operations and substantial credit facilities to fund its capital expenditures, which rose to **NT$6.55 billion (US$236 million)** in 2021 | Metric | 2021 (NT$M) | 2020 (NT$M) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 27,400.0 | 23,011.4 | +19% | | Gross Profit | 7,254.0 | 5,032.2 | +44% | | Operating Profit | 5,562.4 | 3,566.5 | +56% | | Profit for the year | 4,937.3 | 2,379.0 | +108% | | Gross Margin | 26.5% | 21.9% | +4.6pp | | Segment | 2021 Utilization | 2020 Utilization | | :--- | :--- | :--- | | Testing (Memory/Logic) | **83%** | **78%** | | Assembly (Memory/Logic) | **85%** | **83%** | | LCD, OLED, etc. Assembly & Testing | **80%** | **76%** | | Bumping | **85%** | **82%** | - As of December 31, 2021, the company's primary sources of liquidity included **NT$5.9 billion (US$213 million)** in cash and cash equivalents, **NT$5.3 billion (US$191 million)** in undrawn short-term bank loan facilities, and **NT$8.8 billion (US$317 million)** in undrawn long-term bank loan facilities[311](index=311&type=chunk) [Directors, Senior Management and Employees](index=58&type=section&id=Item%206.%20Directors,%20Senior%20Management%20and%20Employees) This section details the company's leadership and workforce, with the Board of Directors comprising nine members, including five independent directors, and provides information on the professional backgrounds of directors and executive officers, noting that the aggregate compensation for directors and executive officers in 2021 was **NT$145 million (US$5 million)**, and as of March 31, 2022, the company employed **5,449 full-time employees**, primarily in Taiwan, with no collective bargaining agreements in place - The Board of Directors consists of nine members, five of whom are independent directors. The company has established both an Audit Committee and a Compensation Committee as required[339](index=339&type=chunk)[340](index=340&type=chunk) - The total compensation paid to directors and executive officers in 2021 was approximately **NT$145 million (US$5 million)**[355](index=355&type=chunk) - As of March 31, 2022, the company had **5,449 full-time employees**, with the vast majority located at its production facilities in Taiwan. Employees are not covered by collective bargaining agreements[360](index=360&type=chunk)[361](index=361&type=chunk) [Major Shareholders and Related Party Transactions](index=61&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) This section identifies the company's major shareholders and describes its related party transactions, noting that as of March 2022, the largest shareholders were the ADS Depositary (Citibank, N.A.) and Siliconware Precision Industries Co., Ltd., with related party transactions primarily involving Unimos Shanghai, a **45.02%-owned affiliate**, including technology transfer agreements that were terminated in April 2020 | Name of Beneficial Owner | Percentage of Shares Owned (as of March 28, 2022) | | :--- | :--- | | Depositary (for ADSs) | **12.19%** | | Siliconware Precision Industries Co., Ltd. | **10.85%** | | Yann Yuan Investment Co., Ltd. | **5.67%** | - Related party transactions centered on Unimos Shanghai, a **45.02%-owned affiliate**. This included technology transfer and license agreements, which were mutually terminated on April 1, 2020[366](index=366&type=chunk)[369](index=369&type=chunk) [Financial Information](index=63&type=section&id=Item%208.%20Financial%20Information) This section refers to the detailed consolidated financial statements provided under Item 18, confirms the absence of material litigation in 2021, and outlines the company's dividend policy, which aims to balance shareholder returns with long-term financial planning, stipulating that cash dividends must account for at least **10% of the total profit** distributed, with the cash distribution per share increasing to **NT$2.20** in 2021 - The company was not involved in any material litigation during 2021[371](index=371&type=chunk) | Year | Cash Distributions per Share (NT$) | | :--- | :--- | | 2019 | 1.20 | | 2020 | 1.80 | | 2021 | **2.20** | - The company's dividend policy requires that cash dividends shall account for at least **10% of the total profit** distributed in a given year[373](index=373&type=chunk) [The Offer and Listing](index=64&type=section&id=Item%209.%20The%20Offer%20and%20Listing) This section provides details on the trading markets for the company's securities, with common shares listed on the Taiwan Stock Exchange (TWSE) under the symbol "**8150**", and American Depositary Shares (ADSs) listed on the NASDAQ Global Select Market under the symbol "**IMOS**" - The company's common shares have been listed on the Taiwan Stock Exchange (TWSE) under the symbol "**8150**" since April 11, 2014[374](index=374&type=chunk) - The company's American Depositary Shares (ADSs) have been listed on the NASDAQ Global Select Market under the symbol "**IMOS**" since November 1, 2016[374](index=374&type=chunk) [Additional Information](index=64&type=section&id=Item%2010.%20Additional%20Information) This section provides comprehensive details on the company's corporate structure, shareholder rights, and regulatory environment, covering the articles of incorporation, dividend distribution rules (including a **10% legal reserve** requirement), preemptive rights, and shareholder meeting procedures, while also listing material contracts, primarily concerning the Unimos Shanghai joint venture, and outlining the legal frameworks for foreign investment in the ROC, ROC taxation, and U.S. federal income tax consequences for ADS holders - Under ROC Company Act, **10% of annual net income** must be set aside as a legal reserve until the accumulated reserve equals the company's paid-in capital[377](index=377&type=chunk) - Holders of the company's ADSs do not have the same voting rights as common shareholders and exercise their rights through the depositary. If no instructions are given, a discretionary proxy may be granted to a person designated by the company[390](index=390&type=chunk)[394](index=394&type=chunk) - Dividends distributed to a non-ROC holder are subject to a **21% ROC withholding tax**. Capital gains from the sale of shares are exempt from ROC income tax, and gains from the sale of ADSs are not considered ROC-sourced income[432](index=432&type=chunk)[433](index=433&type=chunk)[434](index=434&type=chunk) [Quantitative and Qualitative Disclosure about Market Risk](index=77&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) The company's primary financial market risks are related to interest rates and foreign currency exchange rates, with **100% of its NT$10.1 billion (US$364 million)** in debt at variable interest rates as of December 31, 2021, exposing it to fluctuations where a hypothetical 1% increase in interest rates would raise annual interest charges by **NT$102 million (US$4 million)**, and foreign exchange risk arises from assets and liabilities denominated in USD, JPY, and RMB, which is partially mitigated through natural hedging - As of December 31, 2021, **100% of the company's NT$10,145 million (US$366 million)** in aggregate debt carried variable interest rates. A 1% increase in rates would increase annual interest charges by **NT$102 million (US$4 million)**[465](index=465&type=chunk) - The company is exposed to foreign currency risk, with **40.0% of monetary financial assets** and **10.5% of monetary financial liabilities** denominated in foreign currencies. A 5% appreciation of the NT dollar would decrease the exchange gain by **NT$177 million (US$6 million)**[466](index=466&type=chunk) [Description of Securities Other Than Equity Securities](index=78&type=section&id=Item%2012.%20Description%20of%20Securities%20Other%20Than%20Equity%20Securities) This section details the fees associated with the company's American Depositary Shares (ADSs), where ADS holders are required to pay service fees to the depositary bank for actions such as issuance, cancellation, and cash distributions, typically up to **US$5.00 per 100 ADSs**, and in 2021, the company received **US$39.3 thousand** from the depositary as part of its ADR program reimbursement - ADS holders are required to pay service fees to the depositary bank, such as up to **US$5.00 per 100 ADSs** for issuance, cancellation, or distribution of cash dividends[468](index=468&type=chunk) - In 2021, the company received **US$39.3 thousand** from the Depositary, Citi Bank N.A., as a direct reimbursement related to the ADR program[474](index=474&type=chunk)[475](index=475&type=chunk) PART II [Controls and Procedures](index=80&type=section&id=Item%2015.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were **effective as of December 31, 2021**, with management's annual report on internal control over financial reporting, based on the COSO framework, also finding these controls to be **effective as of December 31, 2021**, an assessment audited and confirmed by the independent registered public accounting firm, PricewaterhouseCoopers, Taiwan - Management concluded that the company's disclosure controls and procedures were **effective as of December 31, 2021**[479](index=479&type=chunk) - Based on the criteria in the COSO framework, management concluded that the company's internal control over financial reporting was **effective as of December 31, 2021**. This was audited and confirmed by PricewaterhouseCoopers, Taiwan[482](index=482&type=chunk)[483](index=483&type=chunk) [Corporate Governance and Other Matters](index=80&type=section&id=Item%2016.%20Corporate%20Governance%20and%20Other%20Matters) This section covers various corporate governance and compliance topics, identifying **Chin-Shyh Ou qualifies as an audit committee financial expert** and confirming the adoption of a Code of Ethics, noting that fees paid to the principal accountant, PricewaterhouseCoopers, Taiwan, totaled **NT$19.5 million (US$0.7 million)** in 2021, and detailing how the company's corporate governance practices, governed by ROC law, differ from certain NASDAQ listing standards for domestic companies, as permitted for foreign private issuers - The Board of Directors has determined that independent director **Chin-Shyh Ou qualifies as an audit committee financial expert**[485](index=485&type=chunk) | Fee Type | 2020 (NT$ thousands) | 2021 (NT$ thousands) | | :--- | :--- | :--- | | Audit Fees | 16,400 | 16,400 | | Audit Related Fees | 200 | 200 | | Tax Fees | 2,900 | 2,900 | | **Total** | **19,500** | **19,500** | - As a foreign private issuer, the company follows its home country (ROC) corporate governance practices, which differ from NASDAQ requirements for domestic companies in areas such as director nominations and shareholder approval for equity compensation plans[491](index=491&type=chunk)[492](index=492&type=chunk)[494](index=494&type=chunk) PART III [Financial Statements](index=84&type=section&id=Item%2018.%20Financial%20Statements) This section contains the company's audited consolidated financial statements for the fiscal years ended December 31, 2019, 2020, and 2021, prepared in accordance with International Financial Reporting Standards (IFRS), including the report of the independent registered public accounting firm, PricewaterhouseCoopers, Taiwan, which provides opinions on both the financial statements and the effectiveness of internal control over financial reporting, detailing the company's financial position, comprehensive income, changes in equity, and cash flows - The independent auditor, PricewaterhouseCoopers, Taiwan, issued an opinion stating that the consolidated financial statements present fairly the financial position of the company and that the company maintained effective internal control over financial reporting as of December 31, 2021[510](index=510&type=chunk) | Consolidated Statement of Financial Position (NT$000) | Dec 31, 2020 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **35,080,814** | **42,522,584** | | **Total Liabilities** | **14,364,975** | **18,380,369** | | **Total Equity** | **20,715,839** | **24,142,215** | | Consolidated Statement of Comprehensive Income (NT$000) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Revenue** | **20,337,881** | **23,011,381** | **27,400,035** | | **Gross Profit** | **3,926,139** | **5,032,173** | **7,253,978** | | **Profit for the year** | **2,508,574** | **2,378,978** | **4,937,267** | [Exhibits](index=84&type=section&id=Item%2019.%20Exhibits) This section lists all the exhibits filed as part of the annual report, with key documents including the company's Articles of Incorporation, the ADS Deposit Agreement, the Agreement and Plan of Merger from 2016, various Equity Interest Transfer Agreements related to Unimos Shanghai, and officer certifications required by the Exchange Act - The report includes key corporate documents as exhibits, such as the Articles of Incorporation and the ADS Deposit Agreement[498](index=498&type=chunk) - Multiple material contracts related to the 2016 equity transfer and joint venture formation of Unimos Shanghai are filed as exhibits[498](index=498&type=chunk)[502](index=502&type=chunk)

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