ChipMOS TECHNOLOGIES INC.
Q1 2019 Earnings Call Transcript

Published:

  • Operator:
    Greetings, and welcome to the ChipMOS Technologies Inc. First Quarter 2019 Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host today, David Pasquale, Global IR Partners. Please proceed, sir.
  • David Pasquale:
    Thank you, operator. Welcome, everyone, to ChipMOS's First Quarter 2019 Results Conference Call. Joining us today from the company are Mr. S.J. Cheng, Chairman and President; and Ms. Silvia Su, Vice President of Finance and Accounting Management Center. S.J. will review business highlights and then provide color on the operating environment. Silvia will then review the company's key financial results. We're also joined on the call today by Mr. Jesse Huang, Spokesperson and Vice President of Strategy and Investor Relations. All company executives will participate in the Q&A session after management's formal remarks. If you have not yet received a copy of today's results release, please e-mail Global IR Partners using imos@globalirpartners.com or you can get a copy of the press release off of ChipMOS' website at www.chipmos.com. As with prior quarters, we hosted a call in Mandarin after the close of the Taiwan Stock Market a few hours ago. This is part of the company's ongoing efforts to broaden investor and analyst following in the domestic Asia market given the full Taiwan listing. The prepared comments management will cover here are the same as those covered on the earlier call. The second call is intended to give the company's English-speaking investors the same opportunity to both hear directly from management and to ask questions pertaining to results and the operating environment. With that said, we must make a disclaimer regarding forward-looking statements. During this call, management may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the U.S. Securities and Exchange Act of 1934 as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the company's most recent Annual Report on Form 20F, which was filed with the U.S. Securities and Exchange Commission and in the company's other filings with the SEC. At this time, I'd like to now turn the call over to the company's Chairman and President, Mr. S.J. Cheng. Please go ahead, sir.
  • Shih-Jye Cheng:
    Yes. Thank you, David. Welcome, everyone, to our first quarter 2019 conference call. Hopefully, you all had time to review our earnings release. The biggest takeaway from Q1 are
  • Silvia Su:
    Thank you, S.J. The dollar amount cited in our presentation are in U.S. dollars. We have provided both U.S. dollar and NT dollars in our press release. The following numbers are based on the exchange rate of TWD 30.86 against $1 as of March 29, 2019. All the figures were prepared in accordance with Taiwan-International Financial Reporting Standards. For the first quarter of 2019, total revenue was $144.6 million. Net earnings for the first quarter of 2019 were $0.17 per basic ADS compared to $0.46 per basic ADS for Q4 of 2018. This represents net profit of $6.3 million and $0.01 per basic common share compared to net profit of $16.8 million and $0.02 per basic common share in the fourth quarter of 2018. Net profit was lower compared to Q4 on reduced revenue in the annual low period. Gross margin was low in Q1 2019 due to the lower revenue and lower utilization rate. Our upgraded expenses in Q1 were $11.7 million or 8.1% of our Q1 revenue compared to $11.9 million or 7.4% of our revenue in Q4 of 2018. Net non-operating expenses in Q1 were $2.1 million. In context, the exchange rate for Q1 was $1.9 million compared to $5.6 million in Q4 of 2018. On a segment basis revenue breakdown, our first quarter was 22.2% in testing, 23.1% in assembly, 35.1% in LCD driver business and 19.6% in bumping. We invested $20.4 million in CapEx in Q1 compared to $55.3 million for our fourth quarter 2018. The breakdown of CapEx was 25% for testing, 7.3% for assembly, 59.3% for LCD driver and 8.4% for bumping capacities. Depreciation and amortization expenses were $29.1 million or approximately 20.1% of revenue in the first quarter. EBITDA for Q1 was $39.4 million or 27.2% of revenue. EBITDA was calculated by adding depreciation and amortization together with operating profit. As of March 31, 2019, our balance of cash and cash equivalent was $164.3 million. This does not reflect the JMC stock sale S.J. noted earlier. That will be reflected in our Q2 results. Overall free cash flow in Q1 was $16.2 million which was calculated by adding depreciation, amortization, interest income together with operating profit and then subtracting CapEx, interest expense, income tax expense and dividend from sum. As of March 31, 2019, our net debt balance was $191.1 million, which resulted in a net debt-to-equity ratio of 32.2%. While EBITDA, free cash flow and net debt-to-equity ratio are not defined by generally accepted accounting principles, we believe these are helpful indicators to measure our financial strengths. Accounts receivable turnover days in Q1 were 91 days compared to 87 days in Q4 of 2018. Inventory turnover days were 42 days in Q1 compared to 43 days in Q4 of 2018. As of April 30, 2019, the company's outstanding ADS number was approximately 5 million units, which represent around 13.7% of the company's outstanding common shares. Operator, that concludes our formal remarks. We can now take questions.
  • Operator:
    [Operator Instructions] Our first question comes from [Scott Bichens] with [Cafin Holdings].
  • Unidentified Analyst:
    Just a couple of questions here. First of all, can you talk a little bit about the diversification from the memory business. I know at one time, Micron was our largest supplier. I was just wondering, have we added some new suppliers? And are we continually looking for new suppliers?
  • Shih-Jye Cheng:
    Okay. Since last year, we already looking for the new program to increase the, our portfolio flexibility. And actually this is a name for us because they can share same CapEx, which we invest for the period. And we are pretty successful to pass the qualification and engineering qualification. And starting from Q2, we can deliver with in a good result to the market. And starting from April, that the revenue already over our commodity driven revenue, and going forward, they will continue to increase. So from memory-wise, we are already looking for the good product and increase our assembly utilization rate. That would mean a pretty good contribution for us. But regarding to the memory testing, right now, we're still struggling, waiting for the recovery to fill up our vacancy. Is there anything you ...
  • Unidentified Analyst:
    Okay. Yes, so good. Just couple of other questions also. With the trade war that's going on between the U.S. and China, is that affecting the growth of our subsidiary, Unimos, in China?
  • Shih-Jye Cheng:
    Yes. Actually, right now we don't recognize the revenue. We just...
  • Silvia Su:
    Recognize and invest...
  • Shih-Jye Cheng:
    Investment, promoting investment.
  • Silvia Su:
    Investing a lot.
  • Shih-Jye Cheng:
    I think right now, we are not appropriate to talk before we can recruit legal department approval. But we can report the revenue and growth and loss. So if you...
  • Unidentified Analyst:
    But how about the growth? Is there, were you able to sustain any type of growth projection even with the U.S. tariff issues?
  • Shih-Jye Cheng:
    Well, actually right now the Shanghai's revenue is not grows as we expected as quickly. But since we had a regular meeting, a routine meeting between ChipMOS, Unimos and [YPC]. So we keep very close contact to do so.
  • Unidentified Analyst:
    Okay. Also, do we have any other subsidiaries or investments that we're looking to monetize? Like the JMC investment that we just monetized.
  • Shih-Jye Cheng:
    Can you repeat again?
  • Unidentified Analyst:
    Do we have any other subsidiaries that we're able to monetize or sell our shares to increase capital also, just like the JMC investment did?
  • Shih-Jye Cheng:
    So far, we don't have. We still maintain a 10% outstanding share of JMC. We had a confidence level there long-term perspective. And I think the, we were in a superior time, we don't have this idea to do the further disposition.
  • Unidentified Analyst:
    Okay. So then at this point in time you're also, you're not looking to sell the rest of the shares in JMC?
  • Silvia Su:
    No. No. We will keep 10% holding on JMC.
  • Unidentified Analyst:
    I'm sorry. Can you say that again?
  • Silvia Su:
    We will keep the current holding 10% of JMC total outstanding, we will keep such holding percentage.
  • Unidentified Analyst:
    You will keep that? Yes.
  • Silvia Su:
    Yes, we will keep. Yes. We will.
  • Unidentified Analyst:
    Okay. I just want to do a follow-up on the JMC. Do we have any other investments like the JMC investment? Or the only 2 investments we have the JMC and also the Unimos?
  • Silvia Su:
    Yes, JMC and Unimos, they are the only 2 investment company we have.
  • Shih-Jye Cheng:
    And we also had one small company working with us for current time frame. That's for being substrate supplier. That's located in Japan. That's RYOWA. But the investment amount is fairly limited compared with JMC.
  • Unidentified Analyst:
    Okay. And I guess last question is, how do you see the growth in revenue second quarter, third quarter, fourth quarter?
  • Shih-Jye Cheng:
    I think based on the currency devaluation, this year, we increased our CapEx due to the strong demand from customer side regarding with the TDDI, and the penetration rate continue to increase. Just to give you a rough number. For Q1 and this year is 27%; and Q4 last year, 21%. So significant increase, and we just see the penetration rate continue to increase. And testing time is getting longer so we increased our CapEx. And what those CapEx with 3-year long-term guarantee with minimal utilization rate, that what reduced our risk and also can guarantee our full utilization rate for rest of this year. And the revenue actually continue to increase starting from Q2 because our installation base were, start from end of the Q1 and Q2 and Q3. So you can see the driver for whole year will continue to increase. And margin-wise, it will further improve. That's first one. And second one is regarding to the memory side. We are really looking for the new customer program, which can offset commodity impact. The only solution we don't have right now is memory testing. We already will see warm sign starting from this month. And, but recovery-wise, it's not as good as we expected. Maybe go to the second half.
  • Unidentified Analyst:
    Okay. The other thing is also years ago, when you used to put out some of the bullet points for the month, you would put in free cash flow. I noticed now, especially in this month, our CapEx was $20 million. And it looks like depreciation was $29 million. So basically, we have about $9 million more in free cash flow on top of the $6 million profit that we made. Would you agree that we had about $16 million in free cash flow in the first quarter?
  • Silvia Su:
    Yes. The free cash flow for first quarter is around $16 million. Yes.
  • Unidentified Analyst:
    $16 million? So you do agree with those numbers?
  • Silvia Su:
    Yes. Yes, our free cash flow for Q1.
  • Unidentified Analyst:
    Right. Well, yes. Okay. Let's just see. One other thing, have you put out the full CapEx requirements for 2019 yet?
  • Silvia Su:
    You mean the CapEx of 2019?
  • Unidentified Analyst:
    Yes.
  • Silvia Su:
    Okay, okay. Then actually, it's around 20% to 25% of our total revenue of 2019. Yes.
  • Unidentified Analyst:
    Okay. Because it was pretty low in the first quarter. Should we expect that to build up? Or stay equal going to the next?
  • Silvia Su:
    Yes. It will go higher quarter by quarter. Yes, it will go higher next quarter, yes.
  • Operator:
    [Operator Instructions] Our next question comes from [Vipul Saha] with [Blas Capital].
  • Unidentified Analyst:
    My first question is about revenue growth for 2019. What kind of revenue growth are you looking for 2019?
  • Shih-Jye Cheng:
    Yes. The, actually the, as a policy, we do not provide a detailed financial guidance given the Taiwan regulation. What we can let you know the, although we expect revenue will grow sequentially as we move through the 2019. First driving bullet point is the LCD driver. I think we continue to install new capacity. And right now we only draw in the full capacity. So through the new equipment installation and thus with capacity secure long-term agreement. So this is first driving fully for us. The second one is in the memory. As I mentioned, we're already looking for the plus memory product to increase our assembly capacity utilization rate. So we confident this level from quarter-over-quarter will growth. And I seeing the pace of our integration, Q2 at least, we can see the almost 2 digits growth revenue-wise.
  • Unidentified Analyst:
    Double-digit revenue growth? Excuse me?
  • Shih-Jye Cheng:
    Yes.
  • Unidentified Analyst:
    So can you talk for the second quarter?
  • Shih-Jye Cheng:
    Yes. For second quarter compared with the first quarter. And for the whole year, since yesterday, [indiscernible] published their modeling. So have pretty good progress in 2019 for the second half.
  • Unidentified Analyst:
    Okay. So let me understand this. For second quarter, you're looking at double-digit revenue growth. And for the year, you're looking at second, third and fourth quarter sequential revenue growth just like last year?
  • Shih-Jye Cheng:
    The modeling, yes.
  • Unidentified Analyst:
    Okay. And then for CapEx, what is the approximate, I know you said 20% to 25%. Last year, your CapEx was $161 million for the whole year. So that was about 26% of your revenue. So this year, you're looking at between 20% and 25% of your revenue? Is that what you said?
  • Shih-Jye Cheng:
    Yes.
  • Silvia Su:
    Yes. Yes.
  • Unidentified Analyst:
    Okay. And then last year you had a price hike. You raised your prices in the second quarter. You raised your prices a little more in the fourth quarter. Any price hikes in 2019?
  • Shih-Jye Cheng:
    Yes. Actually, I think the first one, we are just signing a contract with our customers. So that was based on the market situation.
  • Unidentified Analyst:
    Okay. So no further price hikes in 2019 because you signed a contract last year. Is that right?
  • Shih-Jye Cheng:
    The new capacity, we signed a contract. But existing capacity, which we invested before, still had a good opportunity to raise.
  • Unidentified Analyst:
    So there is a chance that you might raise prices in 2019? Is that right? You may raise prices in 2019?
  • Shih-Jye Cheng:
    Yes, yes. We may, yes.
  • Unidentified Analyst:
    Okay. And gross margin, [indiscernible].
  • Shih-Jye Cheng:
    Yes. For margin-wise and profit-wise, since you can see our utilization rates are fully utilized. So we also drive a lot of automation and simplification and AI projects to reduce our headcount. And so you can see this year from operation cost-wise, headcount-wise were reduced even we increase our capacity. So the revenue per headcount and the profit will be continue to improve, not only from new capacity investment, but also for automation.
  • Unidentified Analyst:
    Okay. And last question is, any chance of taking some of the money that you raised by selling your JMC stake? You raised about $38 million. Any chance of using some of that money to buy back your stock?
  • Shih-Jye Cheng:
    Yes. Actually, there's, currently we don't have this kind of plan yet. But since we had a lot of net profit on the pocket, so we are going to discuss with our Board how do we share the benefit with all the shareholders. But not finalized yet.
  • Unidentified Analyst:
    Okay. So maybe when you, at your Annual Meeting on June 10, maybe then you will, be possible...
  • Shih-Jye Cheng:
    We will produce whether you know or yes, yes.
  • Operator:
    [Operator Instructions] There are no further questions in queue at this time. I would like to turn the call back over to Mr. S.J. Cheng, we have another follow-up from [Vipul Saha].
  • Unidentified Analyst:
    One more question, that was about the free cash flow. Hello?
  • Shih-Jye Cheng:
    Yes. Yes, we can hear your line.
  • Unidentified Analyst:
    Yes. Your free cash flow was $16.2 million first quarter. For rest of the year, do you think in 2019, will there be free cash flow for the whole year?
  • Silvia Su:
    2019, yes, for the whole year 2019, there will be net free cash flow.
  • Unidentified Analyst:
    There will be a net free cash flow?
  • Silvia Su:
    Yes, negative.
  • Unidentified Analyst:
    There will be a net free...
  • Silvia Su:
    Negative. So free cash flow out.
  • Unidentified Analyst:
    Okay. That's what I want. Okay. For the whole year '19, it will be negative cash flow? Okay.
  • Silvia Su:
    Yes.
  • Operator:
    At this time, I would like to turn the call back to Mr. S.J. Cheng for closing comments.
  • Shih-Jye Cheng:
    Yes. Thank you everyone who joined our Q1 2019 conference call. Thank you very much. Bye-bye.
  • Silvia Su:
    Bye-bye.
  • Operator:
    This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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