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

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

Good day, everyone. Welcome to E Ink Second Quarter Investor Conference. First of all, I'm sorry for being late. We just overcame technical problems. So before we proceed, there's always a few little story inside the cover page. I mean, in the second quarter of this year, Samsung announced the global launch of its 32-inch color E-Paper, which adopts E Ink's Spectra 6 advanced digital technologies, of course, featuring ultra-low power consumption, high visibility and a lightweight design. It comes with a built-in battery that allows for free installation without an external power source once fully charged offering businesses a more eco-friendly and versatile display solution. And you can also see another photo on the cover page on the right-hand side. Last month, locally in Taiwan at the National Theater, visitors and audiences were welcomed by two 75-inch E Ink's Spectra 6 color E-Paper display, okay? All right. Next page. All right. Before we talk about those financials, let's take a few seconds on the safe harbor statement. Okay. First half key highlights. The sales revenue reached TWD 18.7 billion, representing 41% year-over-year growth. Operating profit was around TWD 6.3 billion. And for non-op, it's a loss, unfortunately, amounted to TWD 153 million. Net income at TWD 5.17 billion with associated EPS at TWD 4.5. For the nonoperating loss, basically due to the significant depreciation of U.S. dollars, which led to a higher net foreign exchange losses. Next page. For operating profit, driven by sales growth in the first half, operating profit increased to TWD 6.35 billion with the operating margin rising to 34%. For the asset side, the total assets increased from TWD 85.6 billion to TWD 98.2 billion, year-over-year increase of TWD 12.6 billion. Next page. For the cash flow, by end of second quarter, both cash and financial assets increased, respectively, totaling around TWD 64.7 billion, of course, including a net cash position of TWD 16.8 billion, an increase of TWD 5.3 billion from the previous year. All right. So we received quite a bit of feedback on Color E devices in the first half. And we would like to share some user experiences from Amazon Kindle. We are very much honored to continue supporting Kindle in its mission to make reading more engaging and enjoyable, especially through the power of color, our technology. Through their website, we found that this year, Kindle readers around the world have turned more than 129 billion pages, making a growth of several billion pages compared to last year. One standout highlight is the growing engagement with Kindle Colorsoft. On average, users read significantly more pages on Colorsoft than the other Kindle devices, showing how the color experience truly resonates with readers. Last month, Kindle launched a new generation of Colorsoft along with its first ever color Kindle designed specifically for children, helping young readers fall in love with reading in a world full of vibrant colors. Basically, we are, once again, very proud to partner with Amazon Kindle in driving innovation and making reading even more captivating and immersive through color technologies, right? Basically, this -- I mean, second quarter, we continue to collaborate closely with our ecosystem partners to accelerate the adoption of innovative ePaper applications bringing the benefits of ePaper into more aspects of everyday life. As you can see from the screen, starting with E-devices such as books, iReader and Hanvon, they all launched new color ePaper products, including E-notes, monitors and eReaders, broadening the use of color ePaper in education and creative markets. In addition, we developed an ePaper touchpad solution through Intel Smart Base, enabling a new interactive experience for AI PC. For the wearables and mobile accessory space, MagInk introduced -- as you can see from the top center, MagInk introduced a new color ePaper power bank that offers both personalized displays such as photos and portability, showcasing the versatility of ePaper in multifunctional devices. Also for digital signage, we collaborated with Japanese media company, Oricom to launch the sustainable board, a next-generation signage solution powered by E Ink's Spectra 6 developed under Oricom's Miracle brand. And also, we partnered with another Japanese company, it's called CO-WIN. They deploy color ePaper signage in the Izu Haneda highway buses. Passengers on the bus can interact with the onboard display and tablets to access local travel information. And also, in the States, Duquesne University is modernizing campus signage by deploying PPDS, basically a display from Philips, also powered by our Spectra 6. This digital signage preserves historic aesthetics of the campus while enabling real-time communication. Basically, for those examples, I just introduced, reflect the theme of this update, more collaboration and broader reach. We are seeing ePaper technology adopted across a growing range of industrials and use cases, we remain committed to expanding our ecosystem partnership to unlock the full potential of ePaper. All right. So next, I'm going to talk about the few sustainability or ESG efforts we have done in the second quarter with our ongoing improvements in sustainability performance, we received a quite significant higher ESG rating from FTSE Russell, one of the leading index companies. Our consistently strong ESG performance has also allowed us to remain constituent of the FTSE4Good Index Series. Additionally, FTSE Russell bring revenue data model now fully recognize our economic activities and green product sales. Our green revenue rating has improved to 100%. In other words, all revenue from ePaper products is classified as green under this model. Next page. So for -- CDP is one of the most important international organizations evaluating company's environmental management capabilities. we received an AA list in CDP's climate change and water security assessment. This recognition not only demonstrates our concrete actions and strong commitment to addressing climate change and protecting water resources but also reflects our outstanding performance in sustainability. All right. We also continue to make progress in other sustainability efforts. For example, our E Ink new Hsinchu Building has achieved LEED Gold certification, reflecting our commitment to sustainable and environmentally conscious development and also our three major sites under E Ink Group, Hsinchu, Linkou, and Yangzhou now UL2799 (sic) [ UL2799A ] Zero Waste to landfill on platinum certified. And also, there's a leading magazine in Taiwan is called Commonwealth Magazine under their TRiPS program, basically assesses companies' net zero alignment with the Paris Agreement on 1.5-degree goal. Our carbon reduction pathway remained uncertified but aligned with this trajectory. So last but not least, we continue to expand beyond our core ePaper business. We actively support cultural and educational initiatives. For example, we are in partnership with Kaohsiung Museum of Fine Arts. And we also work with Taipei Fine Arts museum. We provide basically ePaper display for the exhibition, engaging the community and showcasing ePaper potential in prominent culture spaces. And we also, as I mentioned earlier, we installed a large format ePaper signage at the National Theater locally in Taiwan, offering greater energy efficiency, lower carbon emissions and also easier maintenance than the traditional LCD displays, demonstrating how E Ink products contribute to society and culture. So before the Q&A, let's take a quick look at Samsung's latest Color E-Paper digital signage launch video. [Presentation]

Thank you for watching. Let's move to the Q&A session.

[Operator Instructions] So the first question will come from Catherine from [indiscernible]?

Can you hear me?

Yes, very well.

Sorry, I encountered some technical issues in the Chinese session. So my first question is about the ESL application. So congratulations on the good result. We noticed that your ESL revenue nearly doubled Y-o-Y in 2Q. I just want to get a sense of the sustainability of this revenue growth. How much of that comes from probably the customer pull-in effort ahead of the potential tariff impact? And how much of that will also continue in the 3Q and 4Q? And how should we think about the revenue growth in second half?

Right. Catherine, I think, first of all, we believe the momentum -- the growth momentum for ESL has stepped into an organic growth mode. So I understand where your question is coming from. You sort of like want to find out how much the growth would have been driven by the rush order and how much it would have been driven by the natural growth. I think since the ESL is already into the organic growth mode, I would say probably the majority is coming from the normal growth because it seems that for the retailer, automation and digitalization was already the trend for them. So under the macro uncertainty associated by the tariff or whatever reason, I think they need more automation. They need more digitalization. So I would say from the growth of the ESL perspective, I would say it just happened like that. And whether the growing momentum can be carried forward, we believe in that way. We believe in that way. I think what it will be impacted is for those retailers haven't really decided to adopt or install the ESL solution. For those who already decided, I think they just move on, move forward. And even under such macro uncertainty, they even want to speed it up because that brings more advantage in terms of the operation.

I see. Very clear. Another one -- another question goes to the consumer electronics. This sector grew about 9% Y-o-Y and 18% Q-o-Q. I'm just wondering, you mentioned in the Chinese session that some China education sector is not doing quite good. I'm wondering how much of that growth -- where is this growth coming from? And how can we see that in the second half since this sector might be more impacted by tariff decision later in the year.

Right. Actually, we have a different customer -- I mean, CE customers globally. We do have some in China, but we also have quite a lot for the non-China region. So strategically, we want to use our color technology to trigger further growth of our CE business. It seems worked and it continues to be working. So even some of our CE China business has been affected, but the rest of the business outside of China is still going on. So for those growth, basically, it is coming from the non-China customers.

I see. And just so you mentioned about the technology in the CE side. I understand that most of the brands are still using Kaleido for eReaders and only a few using Gallery. I'm just wondering if next year, there will be more brands using Gallery and probably transitioning from Kaleido to Gallery. And if that's the case, how would that affect our ASP and our margin?

Yes, Catherine, I mean, first of all, it's a bit hard for us to comment on behalf of our customer, which technology they're eventually going to adopt. But what I can tell you is I think Kaleido and Gallery will still be in the market because it all depends on our customer to be used for different applications. So it's kind of hard to say. But I think coming back to your question, either technology they choose the impact to the ASP, I think -- let me put it in a different way. I think we really want to increase the penetration or the market use of the ePaper CE devices. So we are happy to co-create or do a little bit on profit sharing with our customers. So as Johnson mentioned earlier, since we have a little bit room to adjust our gross profit margin. Basically, we will adjust our pricing strategy according to the reality of what will be happening. So not to worry too much, for example, Kaleido will be used majority, it's going to affect our gross profit margin significantly or more Gallery users that will jack up our gross profit margin significantly. Don't think in that way. I think we are creating this ecosystem. We are creating the ePaper industry. We need to make our customers happy. So we will try to keep the reasonable margin between us. But the most important thing is how to open up the penetration or I call it the market share for the ePaper-related products or applications.

I see. My final question is regarding our capacity and utilization. So the H5 is already online. Just wondering how is the utilization right now. And how is that going to be like in the future? And also, is there any other plan to expand our capacity just like the H5.

Right. I think a little bit on clarification on H5. H5 basically is ready, but that's a new production line from a customers' perspective. So we need to ship the new product for their certification. So it needs a while to go through. So currently, the utilization rate is very, very low. But once it gets certified, basically, we can ramp it up. So that's the reality. And for the rest of the production line, we have, basically, that's pretty much fully utilized, but for your information, theoretically, 100% being utilized for the production line, it's possible, but that's from the theory perspective. But practically, we always need to reserve a certain level of the capacity for the R&D. So combined R&D and mass production, the rest of our production line is pretty much utilized.

Our next question is coming from Edison from HSBC.

Can you hear me?

Yes, very well.

So I think my first question is on your gross profit margin albeit in the second quarter. I know partially it's driven by product mix, given DSO exposure is higher. But I just want to know, is there any other reason outside of the better product mix angle?

Right. Product mix is the main reason, side of it, I think Johnson also explained in the previous earnings conference, operation efficiency improvement, that also contributed a bit. And there is a nuance in the product mix change. I mean, generally, we talk about, for example, more ESL sales or IoT sales, less CE sales, that basically changed the level of our gross profit margin. But don't forget one thing. Under the ESL for the new product, we also help our customers to do a little bit module. So if every quarter, that part is reduced, that also helpful in terms of our gross profit margin. And also for CE, there are different level of the products under CE business segments, some of with the higher spec that comes with sort of like a relatively higher margin. So product mix change plus the operational efficiency improvement, basically, they are the two main reasons. However, under product mix change, there's a nuance, as I mentioned previously, also contribute a bit in terms of the higher gross profit margin.

Got it. Got it. I have a follow-up question for this one. So how should we think about the future gross profit margin range? Will the thing you mentioned previously become a new norm. So how should we like estimate for the gross profit margin in the future?

Right. I think generally speaking, I think our CEO, Johnson also mentioned in the previous earnings conference, generally speaking, we try to keep it ranging from 50% to 55%. But sometimes it goes better, of course, we will consider the profit sharing. But under current situation, we are very tight in capacity. So it doesn't really make sense for us to contribute more in terms of the profitability. So what I'm trying to say, going forward, if we do notice we expect a higher gross profit margin, we basically want to keep it around 50% to 55%. And anything goes above, we are happy to share the profit with our customer. But it varies with the reality. It varies with the situation. But generally speaking, we want to keep it around 50% to 55% because we are creating this industry. We are creating this ecosystem. So we need to co-create and co-sharing the profitability with our ecosystem partners.

Right. My next question will be on the revenue growth trajectory. I think during the last earnings call, you mentioned like strong second quarter, resilient third quarters and still hasn't had the visibility back then for fourth quarter. I just want to know, does this change versus 3 months ago? And as we noticed the second quarter ESL rebound strongly. So how should we think about the growth rate for ESL in the second half of this year?

I think our guidance still remains the same. Second quarter still the peak. Third quarter basically slightly decreased compared with the second quarter. And fourth quarter decreased compared with the third quarter. But overall, the whole year 2025, basically, we are still expecting a year-over-year growth. But to what extent? I think since even we received the regular sales forecast from our customers. But sometimes, it's really hard to say till they actually pull in. We all see the numbers in our sales forecast. And we are sort of like confident with the numbers in third quarter. But given the macro uncertainty, we are a bit less -- we are a bit conservative for the fourth quarter. So once again, we believe 25 this year, still good, better than last year. But to what extent, it's really hard to say. It's really hard to say. But our guidance remains the same, yes.

Okay. Got it. I think on the second part of my question is still coming from the ESL growth. I'm just wondering, can this sustain into the second half? Because I think during your partner, VusionGroup, they kind of commented that the Walmart deployment is kind of faster than expected. So I'm just wondering what's your view in terms of the ESL growth and also maybe some of the color on why VusionGroup saying the deployment is faster than expected. That would be super helpful.

Right. I think the ESL demand, we believe, is still intact. But sometimes quarter-over-quarter discrepancy, it happens. So if you want me to comment what will be happening in the following 2 quarters, I think it's a bit hard. So in the long run, the demand is still intact. So I think that's what I can answer to your questions.

Next question we will take from Patrick Cadell from Ashmore.

Just wanted to ask about the large signage business. So can you give an update on growth prospects there and what kind of percentage contribution to revenue you expect in the second half and into '26?

Right. For the large format signage, the percentage is still relatively low, I think lower single digits so far. So if you are talking about the meaningful sales revenue contribution, I think that's going to go probably second half of next year and even first half of '27 then. But I think everything is moving positively, especially our H5 basically is ready and being -- currently is in the process of customer certification. Once it's done, I think we can take very good advantage of the H5, especially on the large format sized display production.

And so for H5 to ramp up, how long will that certification take? And when do you expect that line to contribute more meaningfully?

I think it's -- since it's in the process of the certification, so I believe conservatively 1 quarter to go. So definitely, by end of this year, the certification can be done, yes.

And so why -- if H5 certified by the end of the year, why don't you get meaningful revenue contribution in the first half of next year?

No, no. I mean, I'm not saying first half next year, I'm saying second half of next year and even first half of '27.

So why does it take that long between certification and then meaningful revenues?