Afternoon. Welcome to the E Ink Q4 2022 earnings call. At this time, all participant are in a listen only mode. After the presentation, there will be a question and answer session. Today's conference is being recorded. The Webex replay will be available on E Ink's website after today's conference. Joining me today are CFO, Lloyd Chen, and Finance Center Senior Director, Patrick Chang. Now I would like to turn the call over to Lloyd. Thank you, Willie. Good day, everyone. Welcome to 2022 Q4 E Ink earning investor conference. Before we officially start, let's take a quick look at the safe harbor statement. Next page. Let's quickly look at the 2022 whole year P&L first. The sales revenue was around TWD 30 billion. Operating profit was TWD 9.2 billion. Net income TWD 9.91 billion. EPS was 8.69 NT dollars. Basically, 2022 the sales revenue was the possibly eleven year best. Operating profit, net income, as well as EPS, is also the all-time high. Next page. For the operating profit, basically, continued to grow due to the strong demand from the markets for different applications. As you can see from the screen, growing operating profit since 2018. 2022 operating profit was 3 times higher than 2021. Next page. As for ROE and ROA, basically, the ROE was around 25%, and ROA was 16% with the year wide growth 6%. Next page. The total assets increased from operating growth and financial investment. As you can see from the screen, the total assets year wide growth was around TWD 8.1 billion. Next page. For cash flow, the cash position was around TWD 8.8 billion by Q4 last year. We utilized cash flow from operation and investment to further financial investments. Also to dividend payment and to CapEx on ePaper production line. The total financial assets, plus cash, by Q4 was increased to around TWD 37.2 billion. Next page. For the dividend payout, 2022 EPS was around $8.69, and the dividend was $4.5, and dividend was the record high. We have been switching from a value company to a growth company. We reserve partial profits for the further growth. Okay, next page. I would like to share what we have done in terms of the ESG and, you know, those recognition being received externally. We continue to innovate in the development of the color ePaper products for a wide variety of applications. Last year, E Ink Prism and E Ink Spectra 3100 Plus, both won the Taiwan Excellence Award, especially Prism, won the gold award. Also, our affordable color ePaper technology won the 2022 SDIA, Smart Display Industrial Alliance, silver award. At the same time, our battery free color ePaper device also won the bronze medal of the Taiwan Innotech Expo. Also, E Ink Gallery 3, the full-color ePaper technology, won the Innovative Product Award from Hsinchu Science Park. Last but not least, the BMW iX Flow, the concept car, being showcased in 2022 at CES, collaborating between BMW and E Ink, was also being selected by TIME Magazine as one of the best inventions of 2022. On next page, I'm gonna talk about their new concept car. All right, next page. All right. That's another example of being used for our Prism technology. E Ink Prism 3 is the next generation Prism film, which bridges the gap between traditional static materials and digital technology with dynamically changing materials. Fully programmable. As designers can now integrate endless materials with changeable colors and patterns. As I mentioned earlier, at CES 2023, BMW is using Prism 3 to create a multi-colored scheme on their new iVision DEE. D-E-E, DEE, basically is the abbreviation of Digital Emotional Experience. This concept car basically is the first one, use our Prism 3 in the automotive applications. E Ink 3 creates a unique experience like never before. Product developers and designers, they have the ability to integrate our technology to create dynamic surfaces. Prism offers the ability to design in a no-low power, sustainable display solution that is customizable and offers endless design opportunities through a combination of changing colors, patterns, and user-defined programs. E Ink works to enable solution that allow our customer to design smarter devices for a sustainable future. Next page. I would like to talk about our latest Gallery and Kaleido color products. They also move into mass production with customer launches. As you can see from the screen, the first one is Lenovo. They announced at also CES 2023, an innovative new model in the ThinkBook Plus series that re-imagines the strong heritage of the twistable form factor with the two rotating display that features an OLED panel on one side and a colorful E Ink screen on the other. It comes with the touch and pen functions, allowing the consumers to use it when you need to concentrate on reading and writing. It is equipped with E Ink Kaleido 3. The battery life of the notebook can last more than 20 hours, which will greatly reduce the energy consumption of the notebook with a positive impact on carbon emission reduction. You can see Philips professional display, PPDS, they also just announced a range of full-size and full-color zero power Philips Tableaux color ePaper signage displays. This new Tableaux display is very suitable for retail, corporate, public spaces and transportation. It is available in 25 inch and 28 variants at launch. This Tableaux display very much ideal for energy-saving solution for business across the sectors. The full color ePaper technology, E Ink Gallery 3, has entered mass production. We of course, very excited to have several major customers announce new products featuring our Gallery 3. This opens up a new chapter in digital reading, offers customers a full color, enhanced reading and shopping experience for e-books while offering sustainable reading options. We believe customers who own black and white eReaders will be encouraged to upgrade to a color reading experience with Gallery 3. As you can see from the screen, PocketBook Viva will be launched soon. It is equipped with our Gallery 3 technologies. One of the leading index company FTSE Russell, according to their evaluation of the green revenue model, E Ink was identified as having 99.98% green revenue in 2021. We contributed a positive impact on the environment. Next page. Would also like to further share our ESG efforts we have made and recognition received in the past year month. We won 2022 TCSA, Taiwan Corporate Sustainability Awards, under prestigious top 100 and also sustainability report platinum, as well as growth through innovation. We were also included in top 25 Taiwan's global brands with the brand value of $78 million. We were honored to be included in DJSI World Emerging Market Index. Also, Taipei Exchange ESG Index, as well as MSCI ESG Index in 2022. Next page. I think, previously, I ever introduced E Ink's ESG framework, is called PESG. Basically P is our green product. Under this unique PESG framework, we are moving toward sustainability continuously. For the RE100, our original goal was to achieve RE10 by 2022. Of course, eventually 2030, RE100. We understand the importance of this action, so we hit RE20 ahead of our original target RE10 in 2022. Another important initiative is called EP100. We are the first display company joins EP100. We also received CDP rating B, CDP Carbon Disclosure Project. Also, another good rating, TSA, Taiwan Sustainability Assessment rating, double A in 2022, and we endeavor moving up to the higher rating continuously. One of our important ESG actions annually, which is the EReader for the Future. We have been conducting this project since 2017. We collaborate with EPaper ecosystem partners jointly to donate EReader devices and eBooks in order to build up ELibraries for school. After years of solid works, we have humbly donated nearly 3,000 EReader devices, more than 261,000 copies of eBook to nearly 135 elementary schools. 19 libraries benefited, more than 40,000 students, with cumulative more than TWD 200 million value equivalent. Last year, 2022, ERead for the Future ceremony was held in Hong Kong. We stepped outside Taiwan Island. Next page. As mentioned earlier, we were not only being selected in the Sustainability Yearbook 2023 issued by S&P Global in the first time, but also rated as the top 10 companies in our category, which is electronics, equipment, and components industrials. At the same time, we were included in the Industry Mover 2022 because of the significant improvement in rating compared with the previous year. That is about my presentation this time. Let's move to the Q&A session. Thank you. We are now in the Q&A session. To ask a question, please press raise your hand icon on the sidebar. When we take your question, please remember to unmute yourself. You can also ask questions through the text in the question box on the sidebar. Free to ask questions, and we are happy to answer. The first question come from Kenny Chen. Your line is open. Hi, Kenny. Hi, Lloyd. Hi, management team. Thank you for your presentation. I have two questions. The first one is regarding the operating margin level. Since last quarter, you mentioned you will do some profit sharing in order to grow the ePaper industry bigger and faster. I'm wondering how do you see the give and take, will this help you to sustain your operating margin in 2023, at least same as 2022 or above the level of 2022 because of the growing revenue? Right. Right. Kenny, that's a good question. I think a lot of people show the concern over the profit sharing program we mentioned. Their concern is whether that will be greatly affecting our gross profit margin as well as our operating profit. Let me put it this way. I think the purpose of this profit sharing program is to, you know, open up the ePaper market share. As long as the EPaper market share can be further widened up, we believe our cost can be much more competitive. In this regard, we are happy to contribute back those incremental additional margin that we gain associated with the wider market share back to our customers. That, that is the thought behind. Coming back to your, your questions. Since, you know, with a bigger TAM, a bigger penetration and even the bigger market share, we believe our cost can be very much competitive. Basically, we just, you know, contribute back to our customer for the, you know, additional profit we may gain in the long run. Okay, thank you. Another one is, when will your new facility at Guanyin be ready for mass production? I heard that in the Chinese call that you're starting your construction entering Q2 to Q3 this year. What products are you first focusing on? Thank you. Right. Right. Yeah. During our Chinese earnings conference call, our chairman mentioned we will kick off this project soon from the H2. I believe it at least take one year to go. Probably it could be ready by very end of next year or even early 2024. I mean, it's hard to say at this moment, but I think we definitely need one year to go. Basically, we will get this building ready first and decide what will be how we set up for this Guanyin factory. Generally speaking, very high level, definitely something associated with the EPaper production line, plus some material would be used for our ePaper. Basically, the scope of the manufacture would be something around it. Yeah. Okay. I appreciate your color. Thank you. All right. Thank you. Next question is coming from Jerry Su. Your line is open. Hi, Jerry. Hi, Jerry. Please unmute yourself so we can hear you. All right. While we are waiting for Jerry's question, I noticed few question online. I think Max, I saw your question. I think your question is about 2022 outlook. Are we more optimistic on demand? I think, let me put it this way. We also mention this in our Chinese earnings conference call. For the 2023 whole year, we believe the YOY still will be growing. You know, due to the macro uncertainty especially, that they're gonna affect our CE business. We believe the YOY growth generally or as a whole will be the single-digit growth. if it goes better, could be lower double digit. That's how we see the 2023 outlook at this moment. Whether it will turn more optimistic or pessimistic, I hold my comments at this moment. We definitely will provide update in the next quarter conference. You also want to have a capacity expansion update. Our first expansion for production lines, basically, is ready. It's ready. 4 production lines ready. As I mentioned earlier, we are constructing a new building that can fill with additional 2 production line. Let me just call it H5 and H6. H5 basically is ongoing and probably will be ready early next year. Basically this one, we get approval from the board, so it's ongoing project. For H6, we haven't really submitted to the board, but it's under planning. Most likely it will be happening, it could be, you know, happening in the early 2025. That's for the capacity expansion in terms of the EPaper production line. As I mentioned earlier, Kenny asked about our Guanyin factory. Guilin factory is another production-size factory that we are planning now. The new building I just mentioned basically is inside our Hsinchu campus. We are planning to have another new factory in Guilin, outside Hsinchu, but it's not far from Hsinchu, it's in Taoyuan. For that building, we will get it, we will kick it off in the H2. We definitely need one year to go. As I mentioned earlier, it could be ready very end of next year or, you know, early 2025. That's the capacity plan we are having now. Next question is coming from Allen Wang. Your line is open. Hi, Allen. Hi. Sorry, I just unmute. Hi, good afternoon. Hi, good day. Hi. I have a question about ESL. Based on your, you mentioned earlier that ESL is still the trend is growing. I wonder, in terms of the region, will the USA will be the major growth region or what other regions that you think will be a key growth region like China or East Asia? Thank you. Okay. Okay. I believe, the Europe is still the most mature ESL areas and is still, you know, growing continuously. Basically, North America also has been growing and we see a big potential in North America. We believe, you know, that the ESL opportunity in North America seems very big there. However, in Asia, we also see the growing demand in Japan and Korea and also in China. Basically, we do see the growing demand intact in the long run, you know, everywhere. As I mentioned earlier, you know, even Europe is one of the matured area in terms of the ESL, but we still see the growing demand there in North America as well. Okay. Okay. Thank you. Similar question is about the region. besides ESL, there are some like signage. You mentioned earlier there will be a, probably a second or another key driver for our growth. for the signage, like outdoor advertising or similar products, will that happen first in Europe as well? Also how the feedback, the key feedback from client from North America or like other Asia country? Thank you. Yeah. Our chairman did mention the potential of the outdoor signage. Yeah. We've received a lot of inquiries and we also, you know, having extensive discussion with the potential customers. Yeah. We definitely believe the it could be our next growth engine. It's hard to say, you know, which area or which customer would be happening. I think we still need more time on this, but definitely, as you mentioned, it could be our next, you know, growth engine. I think I would like to explain more why we see their potential. Basically, you know, nowadays, due to the electricity associated with the Russia, Ukraine war, you know. A lot of outdoor signage, basically, the local government put a constraint over the electricity usage. Basically a lot of outdoor signage companies, they cannot run those, you know, outdoor signage of 24 hours. Basically that will affect their income. That's one reason. They definitely need a more power efficient display for outdoor signage. I think that's one of our advantages. Second of all, you know, other technologies, such as LCD or LED, they produce the light pollution, you know. A lot of country, the government, officially ban that sort of display being installed in the busy area because that, you know, the driver is basically very much easy to be distracted. From that regard, our technology is being certified, you know, it doesn't produce any light pollution. Based on those reasons, as I mentioned earlier, we received a lot of inquiries. We do see the potential of outdoor signage being our next growth engine. Okay. Thank you so much. All right. The next question is coming from Jennifer Chien. Your line is open. Hi. Can you hear me? Hi, Jennifer. Hi. Hi. Can you hear me? I have two questions. First of all, can you share the rough number of Q4 if the OpEx exclude the, say, bonus and incentive program? Is it the ratio roughly the same as what we see in second and Q3, say 21% or so? The second question from me is that the OpEx ratio or the R&D ratio now for 2022 is around 12%, while, say, AUO as 5% and TSMC at 78%. Can you share your view on the long term R&D intensity guidance, like what would be, say, normal or reasonable to you for the R&D as percent of sales? Right. Thank you. Jennifer, your voice is a bit breaking up. I think your first question is about the employee bonus, right? Just for Q4 exclude the employee bonus and incentive program, what would the Q4 OpEx be like? That's my first question. Sorry, I can't hear you very well. Sorry. Is it clearer now? Not really. Yeah. You please come again. Yeah, come again. Yeah. Sure. I mean, as exclude the employee bonus in Q4, what would the OpEx be like in Q4? Okay. Your question is, if I take out those bonus, how Yeah. how much, the OpEx% would look like, correct? Yes, yes, exactly. Thank you. I apologize. I think I can't really, you know, answer your question, you know. I think let me put it this way. Employee basically is a valuable asset of the company. Without their contribution, we can't really achieve that sort of performance in 2022. This sort of OpEx level would be similar going forward. If you want to build up your model, I think you can simply just, you know, use the historical OpEx percentage over the sales revenue, try to use that percentage to build up your model. Basically, it would be similar. Because once we decide to have this policy, I believe it will be consistent. Your second question, I think is also relevant to the RD expenses under OpEx, right? Once again, my answer would be similar, you know. The ratio, the percentage would be similar. I suggest you can, you know, take the historical percentage to build your model. Yeah. Sorry. Yeah, you mean for 2023 or, say, going forward? I mean, going forward, I think you can use the 2022 and even 2021 as a reference, yeah, to build your model. Yeah. Understood. By the way, let me put it this way. Our RD spending, 50% is relevant to our existing technology products, and 50% basically is for our future technology and products. That's kind of the investment for our future technology. I think that's very important. Yeah. With this investment, if we can, you know, open up our sales revenue further, I think down the road, the bottom line is the total OpEx against our total sales revenue, I think that percentage will become relatively lower. Yeah. Understood. Okay, thank you. All right, thank you. Hi, Jerry. I saw your question online. I think your question is about the completion of the Guanyin factory, the timeline. It's hard to say at this moment, you know. It's really, it really depends on how we start in H2, you know. We could start, you know, like late Q2 or we may, you know, start from Q3 this year. It's hard to say, but we definitely need one year to go. That's my answer to your question. For the CapEx, I think our general guidance still, you know, TWD 5-6 billion per year. I think you mentioned something about the North American branch. Is it associated with our further capacity expansion? Let me put it in this way. I think second expansion for H5 and H6, basically that's preparation for, you know, for the first potential business, you know. The Guanyin factory, also the same thing. You also mentioned about the gross margin, 50% plus minus, it's a healthier level. When the gross margin would go back to 50? I think it all depends on the product mix, you know. I think Q3 last year and Q4 last year, don't take them as a normal level of the gross profit margin, you know. Like Q3, there was a one-off inventory provision involved. Q4, as Johnson mentioned earlier, there was, you know, due to the component shortage, our driver IC and LCD cost was relatively more expensive. You know, those price for those components was more relaxed now. That being reflected in the Q4 gross profit margin. On top of that, we would, you know, implement the profit-sharing program. I won't say it will be happening like, you know, overnight, even next month. I think it could take a while, you know. I think few months may be needed. Once again, I suggest you guys don't pay too much attention on our gross profit margin, you know. I think we are looking after the gross profit absolute value in the long run, you know. We are not really, you know, care too much about the gross profit margin in the short run, because we really want to open up the market share for ePaper. Okay. There's a question about from Dominic Salesky. He want us to repeat the 2023 guidance full year again. Yes, we are happy to. Basically, we believe 2023, the year-over-year growth, for the time being, we believe, they would be more like the single digit growth. It could be a lower double digit. That's how we look at it at this moment. You know, we have the quarterly conference call. If there's a change or we definitely will provide update in the next quarter conference. Next question is from Derek Young. Your line is open. Hi, Derek. Hi. Hi, Lloyd. Thanks for taking my question. Hi. Only one small question on OpEx side. For 2023, you mentioned that we can use the OpEx ratio in 2022 and 2021 for our estimate. Actually there was quite a big difference between these two. If you look at 2022, it's around 23% of the revenue. If you look at 2021, it's 28%. Not sure if you could give us a bit more color regarding this, about the OpEx ratio, the OpEx as a percentage of total revenue for 2023, the more guidance. Thanks. Derek, I think my answer still be the same, you know. If you feel less comfortable to add 2021 into your analysis or how you build the model, maybe just use the 2022 historical for your reference. If I simply break out the OpEx, you know, I would say for the potential increase only on employee cost plus the R&D spending, basically we believe they are very important items for E Ink. Because without good people, we can't really grow, we can't really hit the target, you know. We need to take good care of our employee. Without a proper R&D spending, we can't really, you know, have a good future technology. We will also carefully control the level of the expenses. Once again, take the 2022 historical OpEx for your reference. I think that should be reasonable for you to build your model. On top of that, depreciation. You know, depreciation is something, you should consider, you know. That mainly affect the cost under the cost of goods sold. You know, OpEx is less being affected by the depreciation.