Welcome everyone to Chroma's 2022 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there'll be a question and answer section. Please follow instructions given at the time if you would like to ask the question. For information, a webcast replay will be available within an hour after the conference is finished. Please visit www.chroma.com.tw/investor/index under the investor section. I would like to introduce IR Director, Jennifer. Jennifer, you may begin. Good afternoon, everyone. Welcome to Chroma ATE Third Quarter 2022 Earnings Conference Call. This is Jennifer, and I will host the event today. The presentation material is already posted on our company website under the investor relations. The agenda today will be first, our CFO, Paul Ying, to brief through the financials for the third quarter. Afterwards, I will provide the highlights for our product mix and shipments in third quarter, and the key messages for 2022. We will open up for Q&A. For Q&A section, you may choose to ask in English or Chinese, and we will reply accordingly. Now, I would like to turn the call to our CFO, Paul Ying. Thank you, Jennifer. This is Paul Ying. Well, ladies and gentlemen, Welcome to the Third Quarter of 2022, The Financial Result Conference Call. Well, if we look at our presentation material at the slide number eight, I'm going to starting from this slide. Well, this is the quarterly highlights for the parent company at the third quarter. I think reference to the bar chart on the right-hand side, you can easily see that, for the year of 2022, it performed just like our traditional seasonalities, starting from the lowest bar at the first quarter and growing gradually to reach the peak at the third quarter. For the third quarter alone, you can see the sales revenue reaches TWD 4.17 billion. This is a 12% growth on a quarter-over-quarter basis and a 50% growth on a year-over-year basis. Regarding the gross margin, we're still enjoying somewhere like 54% at the third quarter of this year. The operating margin reaches the record high of 29% for the parent company. For the net income performance, you can see that the net income reaches TWD 1.731 billion, and this is a 4% growth on a quarter-over-quarter basis and double the numbers compared to last year. Well, the single digit growth is regarding to the second quarter we enjoy capital gain from the sales of our subsidiary investment. For the third quarter highlights, you can see that the major growth in third quarter is mainly contributed from the Test Instruments and ATS and the semiconductor and photonic sectors. These represent a growth of 31% and 78% on a year-over-year, respectively. This is the quarterly highlight. If we turn to the slide numbernine 9, you can see that for the third quarter's financial performance, again, you can see that the top line growing compared to last quarter and last year third quarter. The growth on the top line, again, is 12% on Q-over-Q basis and 50% on a year-over-year basis. For the gross margin, again, it's 18% growth on a Q-over-Q basis and another 59% growth on a year-over-year basis. For the expense side, I think the OpEx is still maintaining, not growing that rapidly, compared to the top line. The operating margin enjoyed, like, 16% growth on a Q-over-Q basis and 72% growth on a year-over-year basis. For the non-operating items, you can see that, well, due to I just mentioned last year. No. The second quarter, we enjoyed somewhere like approximately TWD 500 million capital gain from the sales of the investment of a subsidiary called ADLINK, partially disposed. That brings a bit of crank up on the non-operating income. Without that, we're growing like 50%. The net income will reach somewhere like TWD 1.731 billion, and this is a 4% growth on a Q-over-Q basis, and double the numbers of last year's third quarter. The EPS for the third quarter alone, we reached somewhere like TWD 4.11. Compared to the last quarter, TWD 3.95, again, this is a 4% growth and compared to last year, TWD 1.89. It's 117% growth. This is for the third quarter alone. If we turn to next slide, you can see that for the first accumulation for the first three quarters for parent company, we pretty much achieved the top line at a little bit over TWD 10 billion compared to last year. This is a 36% growth. We pretty much, well, the top line is pretty much equivalent to the last year, the whole year's top line. Of course, margin, this is another 33% growth compared to last year for the third quarter. For the operating margin, we also reached TWD 2.882 billion. This is a 44% growth compared to last year. For the net income, this is TWD 4.244 billion. Compared to last year, this is a 21% growth. For the first three quarters, we pretty much earned our paid-in capital pretty much TWD 10.09. This is also a record for Chroma. Compared to last year, this is a 20% growth. For the balance sheet highlight of the slide number 11, I think there's a growth on the short-term debt. Well, that's mainly is due to the third quarter payout for the dividend, cash dividend. But overall, if you look at the return on equity for the third quarter this year is 29%. For the return on assets, it's 21%. It's all, you know, cross over 20 some%, which has reached the high end. We still okay with the free cash flow. This is pretty much for the parent company. If we turn to the page, slide number five, you can see that this is the page for the consolidated income statement. For this page, you can clearly see that for the first three quarters, the net sales reaches at somewhere approximately TWD 16 billion compared to last year around TWD 13 billion. It's a 23% growth. This growth is mainly contributed from the consolidated sales of testing equipment and for testing equipment business. These sectors contributed 14.459 billion NT dollars compared to last year approximately TWD 10 billion. It's a 44% growth. For the MES automation application, here we can see that 26% growth over these sectors. As to the new material business, we have mentioned that many times that starting from next year, it will just terminate. Starting from the first quarter, after the first quarter, this business has been terminated due to the contract, the supply contract with the Japanese supplier has been terminated. These revenue still stay at the first quarter numbers. I think that's the reason why there's a 70% drop compared to last year. Again, I think the growth margin, we've been performing pretty well. You can see that the growth margin is somewhere like 54% and reach at the TWD 8.584 billion compared to the last year. It's a 36% growth. Regarding to the sales revenue, I think this is a record high for the third quarter that causes this kind of performance. For the operating income, you can see that approximately TWD 4 billion contributed to the income and it reaches at the 25% as the growth margin. It's a 70% growth compared to last year's third quarter accumulation. For the net income, again, this is somewhere like TWD 4.3 billion. Compared to last year, this is a 20% growth and reaches at the EPS 10.09. Compared to last year, it's a 20% growth as well. Again, I have to remind you that last year, we do enjoy sale of the property of our previous headquarters, and that's give us somewhere like a 3.5 EPS contribution. Without that, we do have a very good year of this 2022, at least for the first three quarters. Next slide, number six. If you look at the third quarter standalone of the consolidated income statement, again, here we can see that the third quarter alone we reached at the TWD 6.66 billion. Again, this is the record high. Compared to last quarter, it's a 35% growth, and compared to last year, this is a 56% growth. Within this top line, you can see that the sales of testing equipment business reaches at the TWD 6.341 billion, and this is a 37% growth compared to last quarter, and this is 91%, almost double the size of the numbers they made last year. For the NAS, again, it's a 24% growth on a Q-over-Q base and another 61% growth on a year-over-year base. New materials have been mentioned before, so we don't have any numbers now. For the gross margin, for the third quarter, it's somewhere like around TWD 3.5 billion. Compared to last quarter, this is a 21% growth, and compared to last year, this is a 63% growth. For the operating income, again, this is TWD 1.781 billion. Compared to last quarter, this is a 30% growth, and compared to last year, we pretty much doubled the size. For the net income for the third quarter, it's TWD 1.765 billion. Again, it's a 5% growth compared to last quarter, and we doubled the size compared to last year. For the third quarter, the EPS we made TWD 4.11. This is also a record high for our quarterly consolidated net income. As to the balance sheets on the next slide, I think you can also see that the short-term debt increase, well, I think due to the parent company payout, the cash dividend at the third quarter. I think that's the main reason. As to the return on equity, we still maintain somewhere like 28%. Return on assets, 18%. The free cash flow is still in a pretty good shape. This is the highlight for the financial numbers and I will give it to Jennifer. We are moving on to these operational highlights. After we terminate a non-core business, the trading business, the consolidated sales also represent overall the testing equipment business as a whole. The parent company, just to indicate, you know, about the power shipment. In the third quarter, our major growth driver are mainly contributed from the testing instrument ATS, which represent a growth of 31% compared to last year. This is the highest growth rate for these sectors. As we continue to see the strong demand from the EV industry and which just means the EV industry is a major driver for these sectors, okay? Also, at the same time, the semiconductor and photonic sectors presented a decent growth of 78% compared to last year, mainly contributed from the SLT for HPC markets. From consolidated basis, as we mentioned in the beginning of the year, in order to maximize the capacity to fulfill the China EV battery cells demand, the China EV battery cell projects will be taken by China operation sites for final assembling. In the third quarter, we have delivered around TWD 1 billion for EV battery cell projects from Suzhou's operation sites, which is the sales is consolidated under sales from overseas operations. Combined other operation sites, these sectors in third quarter grew by 301%. Okay. Accumulated for first three quarters, testing instrument ATS is almost, you know, equivalent to the total annual sales of last year, TWD 5.5 billion. Because in the first three quarters, testing instrument ATS generates around TWD 5.2 billion, okay? Present growth of 29% compared to last year same period of time. Semiconductor photonic sectors reach about TWD 3.9 billion. We have high level of confidence to reach annual target, which is growth rate of 20%, okay? For the first three quarters, consolidated testing equipment business already exceed the last year total annual sales in 2021. We expect this year for the group, the whole group, the consolidated sales, to do better than last year, 2021, which is around TWD 17.5 billion. Now we could open up for Q&A sessions. Again, you may ask the question either in Chinese or English, and we will reply accordingly. Thank you. Thank you. We're now beginning our question and answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad, then you will enter a queue. After you're announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Our first question is coming from Jerry Su, Credit Suisse. Go ahead, please. Okay. Thanks for taking my question, Paul and Jennifer. My first question is regarding the outlook for the EV turnkey business for this year. I think for the other segments you probably have already touched a bit, but given the strong growth coming from you know EV TWD 1 billion from Suzhou in the third quarter, how should we think about the outlook for fourth quarter or full year 2022 and also 2023? That's my first question. Second question, if you look at your operating expense for you know for the parent company has increased you know a bit from you know last quarter. How should we think about the operating expense going forward? Also, what is the main reason for higher OpEx in 3Q? These are my two questions for now. Thank you. Hi, Jerry. I go for the first questions regarding to the EVs, because we actually have seen a quite strong demand from overall industry, overall EV industry from upstream to downstream, and particularly highlight to EV battery cell orders. This type of order usually have a longer lead time of four, five months. Even after our shipment in the third quarter, our current cash receipt in advance from this related project is still maintain. I think the balance is about TWD 1.5 billion by end of September. Which means our EV battery cell order will be continued rolling, you know, through next year. We haven't really wrapped up the budget for next year. According to the coming this quarter, fourth quarter, we estimate it should be somewhere around, because it seems it's end of the year, so I think should not be. I think it will be around third quarter's level or even better. This is what we have seen for the EV driver in the fourth quarter. We still have some backlogs. Not some. We still have backlogs for 2023. Then we will probably comment about that in the beginning of next year. I will leave this operating expenses question to our CFO, Paul Ying. Hi, Jerry. This is Paul. Well, I think for the OpEx accumulation for the year 2022, I think has already been settled down. I think compared to last year, we have a bit of growth. I think mainly it's due to the new headquarters we are. The learning curve is still steep. For this year, I think the main growth on here is mainly for the exporting expenses and, you know, the freight charges has been growing. As well as the sales revenue growth and the certain expense will be growing with the exporting. Outside of that would be the salary adjustment. Again, this was done somewhere like in the first half. If you accumulate it for the first three quarters, I would expect that we won't have any big jump on that average. Okay. Thank you. You mean that the operating expense, you know, going forward should be around the average of the first three quarters? Yes. Okay. Thank you. Maybe a quick follow-up. You know, as Jennifer mentioned, the EV business in the fourth quarter could still be flat or up quarter-over-quarter. How should we think about the overall performance, revenue performance for the fourth quarter compared to third quarter, you know, for the overall company? I think due to the seasonality, we think the target area should move into a low season. I think we couldn't give actual numbers guidance. It should be lower than third quarters. It doesn't mean we don't have any order on hand. Yeah. Okay. Okay. Got it. Thank you. Thank you. Ladies and gentlemen, we are now in question and answer session. If you have a question for any of today's speakers, please press zero one. Thank you. Please press zero one to ask questions. Thank you. The next question is coming from Johnny Chen, CLSA. Go ahead, please. Hey, thanks for taking the question, Jennifer and Paul. Just one quick question in regards to any outlook for 2023 that we can expect from the semiconductor or SLT side of things. That seems to be going quite well this year. Thanks. Hi, Charlie. This is Jennifer. I think some of the most This is Johnny Chen. Oh, sorry, Johnny. Yeah. That's fine. Okay, I just saw the name tag says Charlie, so sorry about that. Oh, it's my issue. This is actually, regarding to our semiconductor and photonics sectors, our biggest growth for this year, for number one definitely come from SLT, System-Level Testers for this HPC market. Second driver apparently come from the second quarter, we deliver this new, VCSEL, for these, U.S. customers. Mm-hmm. Coming up for next year, we do have some order on hand. We still mainly focus on these SLT System-Level Testers, because our customers actually target the Auto IC. Current sentiment from our customers' views regarding the semiconductors next year is they don't think overall semiconductor will further growth compared to this year. Only the couple of sectors will maintain the strong growth, which may go like a double to triple. The first one they highlight is Auto IC. In the fourth quarter, our R&D team mostly prepare for these customers the penetration on the Auto IC areas. We expect our SLT specs will need to upgrade, you know, supposed to reach about 2,000 W, this kind of spec, in order to fulfill customers' product roadmap plans in next year, which is Auto IC. Second things, we notice that customers have mostly spent the CapEx on this, I would say, wearable devices, mostly focused on AR and MR. We do have, I would say several customers, they do have this kind of plans on hand. We think this is supports this HPC demand, plus it is possible that the. I think the markets will migrate to so-called MicroLED markets. Mm-hmm. If you look out for the next year, 2023, the biggest growth driver, I think number one still we'd like to point out is EV industry, and followed by this, which is I just highlighted a couple things before the semiconductor sectors. Okay, thank you. Thank you. Thank you. The next question is coming from Jeffrey Tai, JP Morgan. Go ahead, please. Okay, thanks for taking my question. I think, I got two here. First question. Sure. Sure, sure. Let me try again. Hi, so first question is. I think, I'm just curious because your battery formation business is now a lot bigger vs the historical, kind of pattern. Just in one quarter alone, you can generate, you know, TWD 1 billion or more of revenue. Just wondering, with this kind of new scale, can you also compare the margin difference between now vs previous time? That's my first question. You mean our battery cell projects now compared to what we had before? Before, yeah. You know, we always just fight for gross margin maintenance. I think that is the reason why we decide to do the final assembling in China this time. Not only in order to maximize our capacity, but also to make our product more competitive in the markets. Yeah. Oh, I see. Okay. You mean these margins seems to be stable vs previous? We don't comment on certain products' gross margin, but you know, we always try to make our company maintain the gross margin at a certain level overall, you know, around 60-something%. Sure. Okay. That's fine. Also just maybe as a follow-up, I think, because you mentioned about it seems like the prepayment at the end of this, the last quarter, it was about TWD 1.5 billion. Let's say if you do ship about TWD 1 billion in the fourth quarter, well, just probably suggest that we will have some kind of project or some kind of project could be pushed out into 2023 and now become the revenue in next year. Is that a safe assumption? I don't think those orders are so-called push outs. I think just this is how the orders schedule for the 2022 and 2023. Just as we mentioned before, the EV driver, it's this time a more global trend. It probably will last longer than last time the driver, which only came from the China market. The chance for this revenue to be growing in 2023 is, I'll say, better, pretty decent, like if you compare, because you have a pretty successful 2022. If you say, if you ask the question like, can it continue to grow into 2023? Would that? Well- Yeah. We haven't really wrapped our budget for 2023 yet. According to current sentiments, we only pretty much can conclude the overall EV market 2023's momentum should not be lower than 2022. This is what we have seen from the EV market. You know, the EV driver is not only come from the EV battery cell alone, but also include other EV key components. Another type of product also come with EV related, which is energy storage. You know, not every battery cell able to make for EV, but some of them will go to like an energy storage. Combining this kind of EV driver with ESG demands, we also see the energy storage demand continue to increase. Okay, thank you so much. Okay, that's very clear. Thank you. Yeah. Thank you. The next question is coming from Randy, KLL Advisors. Go ahead, please. Hi, Jennifer. Hi. Hi, Paul. I have two questions here. The first one is on the deferred revenue. How much deferred revenue will we have at the end of Q3 on a consolidated basis for all sectors? The second thing is on the gross margin, Q-on-Q, we see it fall on a consolidated basis. Can you just help us understand a bit about what's moving around there to drive this slightly lower gross margin on a consolidated basis? Oh, can you speak more specific about what you mean by deferred revenue? In terms of prepayment, sorry, from your customers. Oh, okay. Oh, because we mentioned that EV battery cell normally takes a longer lead time, average about four to five months. For this kind of project, we always ask for down payment. The payments need to. It's actually broken down to around three or four phases, basically three phases. When we sign a contract, customers need to pay up front like 30%. They explain where those receipts in advance come from. You know, you may track this like in the second quarter, and we have about TWD 1.8 billion, even with delivery in third quarter. I think end of September balances are still around TWD 1.5 billion, which is. It's actually an indication that we still have plenty of orders on hand. Got it. For gross margin, okay, for gross margin, you know, we are the equipment company, we are not the devices and components makers. Unlikely we deliver same type of products every quarter. Sometimes our gross margin may be changed a little bit according to the product mix. It depends on what would be the major for that quarter. Yeah. Got it. Thanks. Yeah. Thank you. Ladies and gentlemen, we are now in question and answer session. If you have question of any of today's speakers, please press zero one. Thank you. Please press zero one to ask questions. Thank you. The next question is coming from Jerry Su, Credit Suisse. Go ahead, please. Thanks for taking my question again. Just a quick follow-up. I think for the you know on the testing instrument and the ATS side, we saw a very strong revenue growth in third quarter or year to date. Can you just provide update on your revenue breakdown for this segment particularly, you know the contribution coming from EV? Thank you. Okay. We actually see quite strong not only come from EV factors, but which I just mentioned, like, energy storage also attach, you know, the, I mean, the trend or demand with the EV developments. We actually see quite strong from the downstream side. We actually received several new customers who actually need to do ESG to generate so-called green revenue to cover their core business. That's why, these factors, even we have quite a decent growth in the first half, but continue to grow in the second half. Yeah. Any rough idea on what's the revenue split between, you know, EV and also the energy storage, within this segment vs the others like consumer related, et cetera? I think so far in the cumulative of third quarter, it's already over 30% that actually comes from EV and energy storage related because that all tied up to so-called. We actually see quite strong from this battery pack business. Okay. Okay, got it. Yeah. Okay, got it. Thank you. Thank you. Thank you. If you would like to ask questions, please press zero one. Thank you. The next question is coming from Jeffrey Tai, JP Morgan. Go ahead, please. Sure. Thank you. Thank you for taking my question again. Yeah. I think I have a question regarding just SLT. I think the outlook for 2023 seems to be positive so far. Just wondering, is the growth coming from additional customers or is growth coming from additional applications such as auto? Yes. Which one is the stronger driver? You mean the SLT? Yes. I think the biggest driver for auto is next year. Yeah. Because this year, I think this year is spent mostly around 1,000 W. My question is more like, do we expect to see more customers, like meaningful customers for 2023 to drive the growth? I will say foundry. Yeah. Maybe. Okay. We see people probably have a bit very sure about this semiconductor industry, but you know, we are the newcomer and we're just being qualified this year. So this doesn't impact by any kind of a tax changes. Yeah. The foundry customer, would they be also focusing on outdoor or, you know, they, are they gonna be focusing on more like HPC networking related applications? For foundry customers, they literally qualify two type of testers from us. We probably couldn't indicate which application at the moment, but I would say mostly related to HPC. Yeah. Instead of auto. Yeah, auto actually comes from the fabless demand. Yeah. Okay. That's very clear. Thank you so much. Yeah. Thank you. The next question is coming from Jennifer Miller from Macquarie. Go ahead, please. Yeah. Hi, Paul and Jennifer. Thanks for taking the call. Hi. Two questions for me. One, can you give any kind of information on your geographic sales breakdown, whether you can break down within ATS and semiconductor or just in general? Number two is any comments on the impact from the U.S. semi export rules? Oh, okay. I think the geographic breakdowns need to be broken down by product sectors, right? However you can break it down would be helpful. Anything you can give in terms of geographic breakdown, either overall Chroma or within ATS and maybe semiconductor. Well, testing from an ATS because the strong demand is actually come from this EV related. As you know, the EV, they say due to the, I would say, manufacturing costs, mostly still manufacturing Asia area. I would say China is the biggest at the moment. I think according to several research reports, it also indicates that the EV driver or each, you know, China actually got the biggest market share for the several key components for EV. No doubt China portion will be quite big. Actually, behind the customers is not hundred percent from the China local. I would say this time the driver could also come from the global markets. I mean, those are European OEM. For semiconductor and photonic testers, yeah, our biggest customers actually come from these, the U.S. customers. You know, just combine, you know, with your second question, I would, you know, Chroma, we basically only make three types of the semiconductor equipment. Number one, SLT System-Level Testers. This is, you know, targets the HPC and we, the biggest customers all come from U.S. fabless. Mm-hmm. Okay. It doesn't matter. It just depends on where they want to ship or which offset they adopt. The payment is made by those U.S. fabless majors. Of course, we also cover Asian fabless, but you know, their adoptions or the stack may be different to U.S. I would say so far, we actually use the mode, SLT as mode to U.S. fabless. Okay. Yeah. Second type tester is, you know, legacy type. You know, we only deal with the 400 MHz. Simple to explain, that is we only deal with 28 nm. As long as you know, not sure, because so far it's up to like 16 nm, but not sure. Just depends on whether I want to including even legacy is included, but so far legacy is not included. Yeah. Lastly is related to VCSEL, which an EL, which is photonic testers. This is not under so-called IC related because it's an optical object. Mm-hmm. Yeah. Okay. All right. One follow-up question, maybe just kind of add on to the first question. For the cell formation systems that you sell, I know historically that's been mainly China, but I think you diversified a lot of geographies for that as well. Any kind of comment on the geography momentum for the cell formation? Well, okay. For Taiwan part, which, as you can see from the items called Turnkey Solution. This is the part we sell, we're building the project to non-China area. Including Japan, Taiwan, and couple outside of China area. Okay. Even including Solar States, very small project from the United States as well. Okay. For China area, as we indicate under sales of our overseas operation. It actually tells you the geography breakdown, you know, the biggest portion still come from China. Yeah. Okay, great. Thank you. It's helpful. Thank you. Thank you. If you would like to ask questions, please press zero one. Thank you. Please press zero one to ask questions. Thank you. There are currently no questions. I will hand it back over to CFO Paul Ying for closing remarks. Mr. Ying, please go ahead. Thank you, Mark. I think for the third quarter and for the first three quarters for Chroma, you can see that we work very hard and we make pretty good financial performance. We are looking forward to see what is the trend will be on 2023. Until then, we will report to you on the next quarter's numbers. Until then, thank you and goodbye. Bye. Thank you. Thank you. Bye-bye. Thank you. Thank you for your participation in Chroma's conference. There will be a webcast replay within an hour. Please visit www.chroma.com.tw.