E Ink Holdings Inc. (8069) Earnings Call Transcript & Summary

Welcome to E Ink First Quarter 2025 Earnings Call. [Operator Instructions] Today's conference is being recorded. The Webex replay will be available on E Ink's website after the conference. Joining us today are CFO Lloyd Chen; and Finance Center Senior Director, Patrick Chang. With that, I will turn the call over to Lloyd.

Good day, everyone. This is Lloyd. Before we start, I mean, as you can see from the screen, you can see the cover page of this quarter's conference this year basically marks the first year of large format ePaper for E Ink. Last month on Touch Taiwan, exhibition, we basically showcased the largest and most advanced color ePaper technologies and products. I think in -- we're going to talk about the Touch Taiwan a bit later during my presentation, okay? We also prepare a few video clip to give you what was happening during the Touch Taiwan day. Okay. Next page. Before we look at those financials and also some market information, let's spend a few seconds on the safe harbor statement. Next page. Okay. The first quarter are key highlights. In first quarter, sales revenue reached TWD 8.06 billion, representing a 43% year-over-year growth. Operating profit was TWD 2.15 billion. Some nonoperating income amounted to TWD 650 million. Net income came in at TWD 2.2 billion with EPS at of TWD 1.91. Next Page. Operating profit driven by sales growth in first quarter '25. Operating profit increased to TWD 2.15 billion with the operating margin rising to 26.6% to expand more innovative ePaper applications. The company continues to invest in R&D and some talents. We believe that research, development and innovation are the key drivers of long-term growth and sustainable operations. Next Page. Look at the balance sheet side, total assets increased from TWD 80.9 billion to TWD 93.6 billion. year-over-year increase of TWD 12.7 billion net asset value per share reached TWD 47.9. The increase in assets was primarily driven by sustained profitability and upgrading cash inflows. We made appropriate allocation into financial instruments and expanded its operation capacity leading to increases in cash, financial investments and fixed tangible fixed assets and right-of-use assets. All right. Next page. In terms of the cash flow, first quarter, both cash and financial assets increased totaling around TWD 61.6 billion, an increase of TWD 2.2 billion from the previous year. With continued profitability and strong cash flows, we maintain a solid financial position under this capital strength. We continue to allocate resources prudently in line with operational plans to support sustainable growth. And would like to briefly explain our ePaper color technologies, especially on signage. As you can see from the screen, the left hand side, this is the full color ePaper signage display featuring our latest E Ink Spectra 6 technology. That also represents the feature of vivid color. And the one in the middle, basically, it's our color technology is called Marquee. That also provides a wider temperature range from minus 20-degree celsius to 65-degree celsius. And the one on the right-hand side, it's our Kaleido 3, that basically provides a video-capable features. So we also prepare a video clip for you to understand more about these 3 color technologies. [Presentation]

Okay. I believe I'm through this video clip. You can get more sense of our 3 major color ePaper color technologies. All right. Let's move to the next page. We continue our innovations, so we get more and more recognition externally. I think that the first thing I would like to share is that we are planning to establish a joint venture with AUO, one of the leading TFT LCD makers in Taiwan. I mean, with their subsidiary display technology, AUO display technology, basically set up an ePaper module production line in Taiwan to begin with by combining our expertise in the ePaper materials with AUO Group strength in panel design, smart manufacturing and also global market access. The partnership basically aims to accelerate the adoption of large-format ePaper in smart retail on digital signage applications. And also, I think from the screen right in the middle, during this year's Touch Taiwan exhibition, our ecosystem partner Readmoo, they unveiled the world's first foldable color eReader Mooink V featuring E Ink our Gallery 3 color technology. This innovative product combined full color display with a foldable form factor to offer a lightweight and paper like digital reading experience. We also prepare a video clip for this. So we're going to show you a bit later. And last but not the least, we continue to drive innovation through green technology and was honored with multiple prestigious awards at 2025 Go Panel Awards and also smart display application awards basically on our 3 color platforms. The first one is 75 Kaleido 3 color display and also Spectra 6 Billboard on solution and also Gallery 3 digital notepad. Okay? So we prepare a video clip for Mooink V, the foldable eReaders. [Presentation]

All right. Let's move to the next page. So it's about Touch Taiwan, the exhibition we just had a few weeks ago. Basically this year on Touch Taiwan exhibition, we have brought together 101 upstream and downstream ecosystem partners to create the largest ever ePaper industry. So basically, we -- I mean, among those partners, the world's top 6 TFT backplane manufacturers, BOE, HKC, TCL CSOT, Sharp AUO and Innolux have all joined as our key partners, underscoring the growing influence and scale of the ePaper ecosystem. As the market demand for automation, sustainability and energy efficiency continues to rise. We remain committed to expanding ePaper applications on delivering greater value to the market through strategic collaboration and innovation. And we also prepared a video clip for Touch Taiwan. [Presentation]

All right. That's the video clip for the Touch Taiwan, the exhibition we just held a few weeks ago. Next page. I'm going to talk about those environmental efforts we have done recently. In 2024, we received the leadership level on results, quite good result from CDP for both climate change and water security basically within A List for climate change which shows our strong efforts in climate action, carbon reduction and water management. In waste reduction, both our Hsinchu and Linkou sites in Taiwan earned UL 2799 Platinum zero waste to landfill certificate in the first quarter. This means the water from our operations is properly recycled and reused. And we already reached 58% renewable energy use globally in 2024, far ahead of our original RE 30 goal that we set up previously. And we will continue working toward using more renewable energy. Next page. I believe we remain committed to sustainable development through strong governance and performance. I think we were recognized in S&P 2025 Sustainability Yearbook as one of the top 1% of companies globally for sustainability performance and basically among 7,690 companies assessed. We also ranked among the top 10 highest scoring companies worldwide, highlighting our strong commitment to sustainable development. Also separately in MSCI ESG rating we improved to an AA leader rating. For Taiwan, local governance evaluations, we continue to rank AAA and stay with the top 5% of the hardware industry for sustainability. Okay. Next page. So I would like to talk a bit about the sustainability action, especially internally at the E Ink. We continue to contribute on the social front. We -- in addition to encouraging employee-led volunteerism. Our employee Volunteer Club actively support and donates to disadvantages in underserved groups. And also, we partner with MIT installed programs to launch the E Ink innovation price which encourages innovative solutions using ePaper technology to tackle urgent global challenges. Locally, we also support arts and cultural sectors in pursuing a sustainable vision. We collaborated with locally Kaohsiung Museum of Fine Arts by donating our ePaper display to help create a low-carbon smart and sustainable exhibition space, okay? So that basically is our first quarter presentation. Let's move to the Q&A session.

[Operator Instructions] We will take the first question from Derrick from Morgan Stanley.

I think the first question is that in the previous earnings call, it seems that you mentioned that the Consumer Electronics segment should be growing by double-digit Y-o-Y in 2025. So I'm wondering if that is still your guidance at this stage?

I think in the previous earnings conference, we didn't really mention that double-digit year-over-year growth on CE sectors. I think what we really mentioned is, for the time being, we received a lot of rush orders from the customers. So second quarter should be on the historical high from the history. And third quarter, we basically still look quite positive. But fourth quarter remains to be seen because from our observation some of our customers pull ahead their orders from the later quarter. That's why we receive a lot of rush orders. But in general, for CE, we still stay positive. But whether it would be double-digit growth or slightly lower, I think it's hard to comment at this moment. But for the time being, we still stay quite positive for CE.

Okay. So just clarify a little bit. When you were talking about 2Q, 3Q and 4Q, you were referring to the overall revenue, not just CE, right?

Right. Right.

Okay. Okay. And then I think during the Mandarin session, the Chairman mentioned that -- I'm not sure if I get it wrong, but it seems that Chairman mentioned that he thinks the color eReader is going to be doing better this year, and it will be up by 40% to 50% Y-o-Y. And black and white will still growing but at a more moderate pace. Is that the right information that the Chairman is trying to deliver?

As I recall, I don't really remember those percentage. But once again, color technology, we believe, I mean, for CE, we believe it's going to be the mainstream going forward. So growth can be expected year-over-year. But whether it will grow up to 40% to 50% like what you just mentioned, I think it still remain to be seen. But we're definitely in the positive growing trend for that part, it is 100% sure.

Okay. Okay. That's very clear. And also during the Mandarin call, Chairman say that -- it seems that there's no or limited impact to the eReader order as of now, despite the tariff, but he said that there are some impact on eNote. So I was wondering what's the breakdown between eReader and eNote within your consumer electronics segment?

I think it still varies from quarter to quarter, I believe eReader still relatively bigger. But eNote is catching right up after the eReader. But one thing I would like to mention, I think going forward, there would be a very, very thin line between eReader and eNote because we believe in the future for the CE devices as long as you can read and also can write, as long as you can write also can read. So I think it's kind of hard to say going forward, I mean, Reader and eNote will be very, very well defined. I think they're going to be a very thin line for these 2 devices. But once again, we grouped these 2 products into one, which means we believe they're going to be very, very similar and compatible. So I think not to worry too much which one will higher than the other, but I think the combined eReader and eNote, basically is in a positive growing trend.

I understand that the line is getting finer between eReaders and eNotes. But is it fair to say that at the current stage, maybe the breakdown is somewhere around 60-40 between eReader and eNote without eReader being bigger?

Yes. Derrick, I don't comment on the percentage then I'll leave you to figure it out. Yes. But I think I mentioned Reader basically relatively higher, but eNote is catching right up.

Okay. Got it. Got it. And my last question is regarding this final assembly capacity because also during the Mandarin call, I think Johnson mentioned that your partners are moving their capacity outside of China into either Southeast Asia or Mexico. So my question is that by the end of 2Q or maybe by the end of 3Q, do we have a sense about the breakdown between the final assembly capacity in China versus non-China? A rough idea would be good.

You mean for example...

The final assembly.

So final assembly, you mean for device or module?

Correct, device, device.

Device?

Yes, it is the device that is shipping into the end market, right? So I was referring to device.

I really don't have the breakdown in percentage, but we do see a growing trend that they adjust the allocation between China and non-China. So when I mentioned non-China, which means the region in Southeast Asia and Mexico. So I don't have the breakdown or I can't really break it out at this moment, but I do see a trend. They allocate more than before in terms of the allocation to Southeast Asia and Mexico. But once again, it depends on where their end customer is. If the end customer -- if their end customers is American customers, I think they would utilize the resources in Mexico. But maybe Europe, non-American customers, basically, they're going to utilize their capacity in Southeast Asia. But Derrick, I would like to give you more color. I think during the Trump's first administration, I think a lot of contract manufacturers, I mean, device makers, they already smell the supply chain risks. So they already started the capacity, different capacity allocation as I mentioned previously. They just get it ready, but they -- before they still concentrate on China. But since they've already done those adjustments properly, so they just stopped shifting the capacity from China to non-China areas. So what I'm trying to say is it doesn't just happen overnight. They have been preparing for that. They just get it ready, but leave it, I mean you use it when the time is right.

Next, we will have Kenny from Nomura.

Yes. Let me squeeze in 1 or 2 questions. I just wanted to follow up on Derrick's question earlier that I think yes, maybe Johnson, he made a very clear point that in terms of revenue, second quarter might be the peak. But I just thought about if you are going to expand your edge by capacity, like in June, that means in second half, you would have more capacity to meet customers' demand. So I mean, do you have -- even if you are in tight capacity, let's say, and then you still have some backlog going into Q3. So is it certain that Q3 will be only flat or slightly down versus Q2? Or you will see some opportunity to witness quarter-on-quarter improvement if the demand is okay and during the second half of this year?

Okay. So Kenny, basically we've received the rolling forecast from our customers regularly, I think, monthly basis, even some of them semi -- bi-weekly basis. So it has been changing, it has been changing. Of course, one of the scenario could be, we believe, second quarter could be the peak. But later on, third quarter surpasses. So hard to say. But based on the situation, we can foresee at this moment, we believe second quarter would be the peak. Yes.

I see. Is this applied to both IoT and CE?

I would say yes, for the time being. But -- it's dynamic. So hard to say at this moment. Yes.

Got it. Great. And just a final follow-up on the so-called cost sharing. I'm wondering if you are going to like procure in a bigger volume or bunch from your supplier trying to get a more favorable pricing to mitigate if any kind of cost down throughout the whole supply chain?

Kenny, come again, your question? Yes. I'm sorry, I didn't really follow at the beginning of your question. Your voice is a bit breaking up.

Sure, sure. To make it -- to like simply put that, are you going to like procure more in the short term and trying to get better pricing from your upstream suppliers so that you can lower your perhaps material costs?

We have our own strategy and policy for the procurement of the material. So there are basically a lot of moving parts at this moment. So I understand where your question is coming from but in order to get the short-term maybe volume discount associated with the cost reduction. I don't think that, that would be a very good idea to have a volume buy for the time being. So because there are a lot of moving parts at this moment. We basically follow our policy in terms of the procurement. Yes. We noticed the question online. Basically, the question is what are U.S. import tariff for ESL and eReader now. So let me start with the eReader. Basically, we call it CE business because that includes eReader and eNote. So I think as you can tell from the abbreviation of CE, eReader eNote is quite relevant to the consumer electronics. So I believe the tariff basically create the impact that affect consumers purchase. So we believe that, that would affect the CE business a bit. However, we've received the rush order from second quarter and from third quarter, basically, we see those customers try to pull ahead the order from fourth quarter. So even fourth quarter remains to be seen. We kind of believe that the whole year still quite positive. Of course, compared with the forecast that we made by end of last year, it wouldn't have been that great. But in terms of the year-over-year growth, we still believe there's still possibility to expect year-over-year growth. But to what extent, I think given the uncertainty on fourth quarter, so it remains to be seen. But for ESL, I think, for those tariff impact, so a certain level of the inflation can be expected. So from a retailer perspective, automation and even digitalization seems to be trend for them. So we believe the installation of the ESL could be accelerated, associated with the tariff impact. So for ESL, we stay very, very positive about the ESL business. So the net-net, we still believe that the whole year 2025, we still can expect certain level of the growth. But once again, to what extent remain to be seen.

We will have Shu-Yu Lin from CLSA.

I have a few follow-ups. One of the follow-up is about ESL and the other system integrators and also our partners have hosted their earnings call earlier. And I believe that most of them still see quite positive trend in the U.S. but they also see some hesitation recently from their European clients. But that's not the first time, of course, like in the past few quarters, some European clients have already postponed their orders. So first of all, so I'm wondering how is our communication and our like conversation with the clients, especially retailers in the Europe for the past few months or a few weeks? And are we also expecting a -- in terms of volume of ESL volume, more than 300 million unit this year because this is a number mentioned by management team earlier this year. So this is the first question.

I don't recall that the number of 300 million units. But Shu-Yu Lin, once again, we supply the big sheet, mother sheet to our customers. So whether they cut it into 2-inch, 1-inch or they cut it for retail signage up to 10-inch, it's very hard for us to know. So talking about those units. It's a bit beyond our -- we don't really know how to calculate it basically. But I think for both American retailers and European retailers, we still stay quite positive in terms of the ESL regardless of where the customers are geographically. Yes.

And another follow-up is also for eReader and eNote. And I think we have already got many discussions earlier from other investors. I'm wondering that like for Amazon Kindle, we've already heard some quality issues reported by the News 3 months ago across brands or, first of all, is that solved for now? And my understanding is that this is not E Ink's issue, but we have to solve some problems within the supply chain for the manufacturing process. And I think we are still stay quite positive during our earlier discussion on all the eReader eNote sector in the mid- to long term? And are we expecting a huge replacement demand for like black and white color solution. So that's my second question.

So for the quality issue, we believe we are not in a position to comment on that. But what I can tell you is if there's still a quality issue, we can tell from the forecast we received, but it seems that the forecast we have been collecting quite well. So I assume that the quality issue should be gone, yes. So that is my quick comment. And for black and white and color. As I mentioned earlier, we believe color is going to be the mainstream. But during the transition, I don't think most of the branders, they will just set a very clear cutoff point, just do a blunt shift from black and white to color. I believe there should be a transition from black and white to color. So in other words, I believe black and white devices still will be there and still will be some new devices. But I believe the more and more color Reader and Notes will be out there going forward.

Due to time constraint, we will take the final question from [ Allan Wang ].

I have 2 questions. One is about your guidance we have been talking about. And then the second one is about the product application. So like as you mentioned, the Q2 could be a peak and the Q3 remained strong and in Q4 remains to be seen, right? And is this based on the U.S. dollar or based on the NTD? That's the first -- this question. And also, are you talking about H5 is going to operate, like Johnson said, in June, hopefully. And then theoretically, with the more production, so we expect more revenue, more income. Could you explain it a little bit?

All right. So for those quarterly sales revenue, the level of the quarterly sales revenue, I believe from both U.S. dollar and NT dollar perspective, they -- the statement basically remember same, okay? For your second question, I understand what are you trying to ask. I think your question is, presumably, if second quarter H5, we are facing a bit hiccup, assuming third quarter it can be ready. So does it mean that we will expect -- we will be expecting the higher sales revenue. I mean, theoretically, yes, because H5 is ready, we can manufacture more sales revenue, we can manufacture more and it generate more sales revenue. But I think H5, basically, it's aiming for the big size products and application. But of course, we can use it for the smaller sites. But I think since Signage, we believe it's going to be our third growth engine. So we will focus on the Signage product first. So once we focus on those products, which means it's going to be occupied, we can't really use it for the small sites products and application. So it's kind of the trade-off between the product mix then. So I mean, theoretically, yes, more capacity would generate more sales revenue, but it all depends how we're going to allocate the resources in H5.

Got it. My second question, also the last question is about application because we have been talking about like education and the medical sector in many -- webinars many times. And then we want to know the updates. If any foreseeable future, is there more adoption from some countries or some companies for as a reference.

Right. I think for medical, we have a lot of inquiries. But full commitment and even the volume commercialization, I do believe we still need some time since for medical, it tend to be the tender business. It is not. It's not like once we get it, it's going to last for quite a long while. It's a tender business, and it's kind of a bit fragmented. So we still need more time to have it recognized in this industry. And for education, I think last year, we do notice growing momentum in China. And we thought the growing momentum will be carried on this year. I mean before the tariff it was there, but after tariff, it's sort of like got affected a bit since it's also relevant to the consumer electronics. So we still believe the business there. It just due to the tariff, we are facing a bit hiccup at this moment. We're still quite confident that we still believe the potential from the education market.

That concludes our Q&A session. I would like to turn the meeting over to Lloyd for closing remarks.

All right. So thank you for your participation. I believe we talked quite a lot about the tariff impact and also the capacity allocation even for the H5. And we'll work very hard, okay. So see you next quarter. Thank you.

Thank you for your time and see you next quarter.