Himax(HIMX) - 2022 Q3 - Quarterly Report

Q3 2022 Financial and Operational Highlights This section summarizes Himax's financial results and business segment performance for Q3 2022, along with balance sheet and cash flow details Q3 2022 Financial Performance Summary Himax reported Q3 2022 revenues of $213.6 million, a 31.7% sequential decrease, which nevertheless exceeded guidance. The non-IFRS profit per diluted ADS was 17.0 cents, also beating the guided range. Gross margin landed at 36.3%, impacted by charges from foundry capacity agreements and price erosion due to industry-wide inventory de-stocking Q3 2022 Financial Performance Summary (Thousands USD) | Financial Metric | Q3 2022 | Q2 2022 | Change (QoQ) | | :--- | :--- | :--- | :--- | | Revenues | $213,600 | $420,900 | -49.2% (Reported as -31.7% in text) | | Gross Margin (Non-IFRS, %) | 36.3% | 43.6% | -7.3 ppt | | Operating Income (Non-IFRS) | $30,900 | $123,400 (Implied) | -75.0% | | After-Tax Profit (Non-IFRS) | $29,800 | $76,800 | -61.2% | | EPS (Non-IFRS, Diluted ADS, USD) | $0.170 | $0.439 | -61.3% | - Both revenues ($213.6 million vs. guidance of a 35-39% decrease) and non-IFRS EPS (17.0 cents vs. guidance of 11.6-15.6 cents) exceeded the company's guidance[1][4] - Gross margin contraction was predominantly caused by incurred charges from agreements with foundries and backend suppliers to secure capacity, as well as price erosion from inventory de-stocking[9] Q3 2022 Business Segment Performance All major business segments experienced sequential declines due to widespread inventory control measures by customers. Large display driver revenue fell 39.8% QoQ. Small and medium-sized display revenue, the largest segment, decreased 29.9% QoQ, though within this segment, AMOLED sales grew over 45% sequentially. The automotive business was the largest single revenue contributor, representing over 35% of total sales Q3 2022 Business Segment Performance (Thousands USD) | Business Segment | Q3 2022 Revenue | % of Total Sales | Sequential Change | | :--- | :--- | :--- | :--- | | Large Display Drivers | $41,300 | 19.3% | -39.8% | | Small & Medium Display Drivers | $141,400 | 66.2% | -29.9% | | Non-Driver Businesses | $30,900 | 14.5% | -26.9% | - The automotive business was the largest revenue contributor, accounting for over 35% of total sales in Q3, despite a double-digit sequential decline due to customer de-stocking[7] - Within the small and medium-sized driver segment, AMOLED sales (including DDIC and Tcon) were a bright spot, growing more than 45% sequentially and accounting for over 8% of total sales[6] Balance Sheet and Cash Flow As of September 30, 2022, Himax held $227.9 million in cash and equivalents, a significant decrease from the previous quarter primarily due to a $217.9 million annual dividend payout. Inventories rose to $410.1 million, reflecting an abrupt drop in demand. The company believes inventory levels peaked at the end of Q3 Balance Sheet Items (Thousands USD) | Balance Sheet Item | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :--- | :--- | :--- | :--- | | Cash & Equivalents | $227,900 | $461,600 | $250,800 | | Inventories | $410,100 | $337,300 | $160,900 | | Accounts Receivable | $253,300 | $371,000 | $400,900 | | DSO (Days Sales Outstanding) | 74 days | 93 days | 100 days | - The company stated its belief that inventory levels reached their peak at the end of the third quarter, based on the current business pipeline and production plan[1][2][15] - The substantial decline in the cash balance during Q3 was primarily due to the annual cash dividend payout of $217.9 million in July[12] Q4 2022 Business Outlook and Guidance This section outlines Himax's Q4 2022 financial projections, including revenue, gross margin, and EPS guidance, and key business segment outlooks Overall Q4 2022 Guidance For the fourth quarter of 2022, Himax projects a sequential revenue increase of 4.0% to 8.0%. The non-IFRS gross margin is expected to be in the range of 31.5% to 33.5%, while non-IFRS profit is guided to be between 21.0 and 24.0 cents per diluted ADS Q4 2022 Guidance | Q4 2022 Guidance Metric | Value | | :--- | :--- | | Net Revenue | Increase 4.0% to 8.0% QoQ | | Non-IFRS Gross Margin | 31.5% to 33.5% | | Non-IFRS Profit per Diluted ADS | 21.0 cents to 24.0 cents | | IFRS Profit per Diluted ADS | 17.8 cents to 20.8 cents | Outlook by Business Segment The company is optimistic about its 'high visibility group' (automotive, AMOLED, Tcon, WiseEye AI), expecting them to collectively account for over 50% of Q4 sales. Automotive TDDI sales are poised for a rebound. Key developments include the planned shipment of smartphone AMOLED drivers around mid-2023 and the debut of the next-generation WE2 AI processor at CES 2023, which promises significant performance and efficiency gains - The high visibility group, comprising automotive, AMOLED, Tcon, and WiseEye AI sensing, is expected to account for more than 50% of total sales in Q4, with their contribution weighting anticipated to increase in the coming years[1][16] - The company expects its full-year 2022 automotive business growth to be around 50% and anticipates the growth momentum, particularly for TDDI, to continue into 2023[1][3][16] - Himax will debut its next-generation WE2 AI processor at CES 2023. The WE2 offers 40% peak power savings and a 30-fold increase in inference speed compared to the first-generation WE1[31] - Shipments of smartphone AMOLED drivers are expected to commence around the middle of 2023, creating a new sales stream for the company[1][24] Display Driver IC Businesses This section details the Q4 2022 outlook for Himax's display driver IC segments, including large, small/medium, automotive, and AMOLED drivers - Large Display (LDDIC): Q4 revenue is projected to be flat sequentially after three quarters of decline. TV driver sales are expected to increase single-digit, while notebook and monitor sales will see further declines[18] - Small/Medium Display (SMDDIC): Q4 revenue is expected to increase by a single digit sequentially. Automotive driver IC sales are anticipated to be flat, with TDDI growing double-digits while traditional DDIC decreases. Tablet driver IC revenue is projected to increase double-digits[19] - Automotive: The company has secured over 200 automotive TDDI project awards, with only a small portion currently in mass production, indicating a large future growth opportunity[20] - AMOLED: Q4 AMOLED sales are set to increase by double-digits sequentially, representing over 9% of total sales. The company is the sole source supplier of AMOLED driver and Tcon for a global leading brand's tablet[24] Non-Driver Product Categories This section covers the Q4 2022 outlook for Himax's non-driver product categories, including TCON, WiseEye AI image sensing, and optical/metaverse technologies - TCON: Q4 Tcon sales are anticipated to increase by high teens sequentially, driven by automotive products. Automotive Tcon sales are expected to grow more than 80% year-over-year[25] - WiseEye AI Image Sensing: The company continues to support Dell's new laptop models and is expanding into new applications like Automatic Meter Reading. The next-gen WE2 AI processor has attracted strong interest from leading laptop and CPU players[26][28][31] - Optical/Metaverse: Small volume shipments of front-lit LCoS microdisplays for AR glasses and head-mounted devices commenced in Q3. A collaboration with a leading VR player for 3D gesture control is expected to enter volume production in 2023[33][34] Consolidated Financial Statements (Unaudited) This section provides the detailed, unaudited financial tables for the third quarter and nine months ended September 30, 2022. It includes the statements of profit or loss, financial position, and cash flows, along with supplemental information and reconciliations of IFRS to non-IFRS financial measures Condensed Consolidated Statements of Profit or Loss For the three months ended September 30, 2022, Himax reported total revenues of $213.6 million and an operating income of $3.9 million. The profit attributable to stockholders was $8.3 million, resulting in a diluted earnings per ADS of $0.048 Condensed Consolidated Statements of Profit or Loss | (In Thousands of U.S. Dollars) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Jun 30, 2022 | 3 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | | Revenues | $213,631 | $312,606 | $420,938 | | Gross Profit | $76,803 | $136,361 | $216,725 | | Operating income | $3,945 | $83,762 | $148,244 | | Profit attributable to stockholders | $8,319 | $70,635 | $118,716 | Condensed Consolidated Statements of Financial Position As of September 30, 2022, the company had total assets of $1.73 billion. Key asset components included $219.7 million in cash and cash equivalents, $253.3 million in accounts receivable, and $410.1 million in inventories. Total liabilities stood at $882.4 million Condensed Consolidated Statements of Financial Position | (In Thousands of U.S. Dollars) | As of Sep 30, 2022 | As of Jun 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $219,745 | $452,902 | | Accounts receivable, net | $253,284 | $371,033 | | Inventories | $410,071 | $337,312 | | Total Assets | $1,730,934 | $1,790,830 | | Liabilities & Equity | | | | Total current liabilities | $736,597 | $796,741 | | Total liabilities | $882,379 | $949,698 | | Total equity | $848,555 | $841,132 | Condensed Consolidated Statements of Cash Flows For the third quarter of 2022, net cash used in operating activities was $3.7 million. Net cash used in investing activities was $6.6 million. Net cash used in financing activities was significant at $220.9 million, driven primarily by the payment of $217.9 million in cash dividends. This resulted in a net decrease in cash and cash equivalents of $233.2 million for the quarter Condensed Consolidated Statements of Cash Flows | (In Thousands of U.S. Dollars) | 3 Months Ended Sep 30, 2022 | | :--- | :--- | | Net cash provided by (used in) operating activities | ($3,674) | | Net cash provided by (used in) investing activities | ($6,584) | | Net cash provided by (used in) financing activities | ($220,856) | | Net decrease in cash and cash equivalents | ($233,157) | Reconciliation of IFRS to Non-IFRS Measures This section reconciles IFRS financial results to non-IFRS figures by excluding share-based compensation, acquisition-related charges, and cash awards. For Q3 2022, the IFRS profit of $8.3 million was adjusted to a non-IFRS profit of $29.8 million. Similarly, the diluted IFRS EPS of $0.048 was adjusted to a non-IFRS EPS of $0.170 Reconciliation to Non-IFRS Profit (Q3 2022) | (In Thousands of U.S. Dollars) | | :--- | :--- | | IFRS Profit attributable to stockholders | $8,319 | | Add: Share-based compensation, net of tax | $14,421 | | Add: Acquisition-related charges, net of tax | $193 | | Add: Cash award, net of tax | $6,841 | | Non-IFRS Profit attributable to stockholders | $29,774 | Reconciliation to Non-IFRS Diluted EPS (Q3 2022) | (In U.S. Dollars) | | :--- | :--- | | Diluted IFRS earnings per ADS | $0.048 | | Add: Share-based compensation per ADS | $0.083 | | Add: Acquisition-related charges per ADS | $0.001 | | Add: Cash award per ADS | $0.039 | | Diluted non-IFRS earnings per ADS | $0.170 |