Chroma ATE Inc. (2360) Earnings Call Transcript

Welcome, everyone, to Chroma's 2026 Second Quarter Earnings Conference Call. [Operator Instructions] And for your information, a webcast replay will be available within an hour after the conference finished. Please visit www.chroma.com.tw investors/inx under the Investor Relations section. Now I would like to hand it over to Croma's management. Please go ahead.

Okay. Good afternoon, everyone. Welcome to Chroma's Second Quarter 2026 Earnings Conference. This is Jennifer, and I will be your host for today's section. As we held an on-site conference before this call, so today's sections will primarily focus on Q&A. I will begin with the remarks from our former CFO, Paul Ying, and follow-up by the presentation of the second quarter financial results by our new CFO, Laurence. After the financial update, I will provide an overview of this quarter's product mix followed by the question-and-answer section. All presentations materials are available for download from the company website. And with that, I will now turn the call over to our CFO, Paul Ying.

Thank you, Jennifer, and all the -- my open from the investor sector. And well, time flies. Today will be my last time to step in the here to talk with you and -- starting from tomorrow, I will be great time from home. And thank you for all your support and all your consideration and attention to Chroma. And please keep on. And with a very amazing and record breaking records for the second quarter 2. . Let me introduce our new CFO, Laurence, to present to you. Thank you.

Hi, everyone. Good afternoon. My name is Laurenc. i'll be incharge here new CFO of Croma, which is a pretty big challenge. So yes. This brief the second quarter results for everybody. First, second quarter consolidated revenue reached TWD 1.53 billion, up to 40% quarter-over-quarter and TWD 110 million year-over-year, making another record high quarter. Gross profit was TWD 8.19 billion with a gross margin of 61% compared with 63% in the first quarter. The decline was mainly due to the short-term higher cost of key components, including DRAM, passive components and -- we remain focused on maintaining a stable margin profile and might be considering a price adjustment if necessary. Operating income was TWD 5.24 billion with operating margin of 39%, representing a 13% growth year-over-year. Non-operating income totaled TWD 1.27 billion, driven by gains from the disposal of 8 like shares and employee housing assets. Net income to shareholders reached TWD 5.12 billion, up to 162% year-over-year, while U.S. was TWD 12.15, both record highs. Secondly, the first half of the 2026 performance. For the first half of 226, consolidated revenue was TWD 25.9 billion up to 91% over -- year-over-year, which represents almost doubling growth. The gross profit was totaled TWD 15.61 billion, with gross margin of 61%. Operating income was TWD 10.1 billion, which represent tremendous 30% year-over-year growth. net income to shareholders reached almost $9 billion, up to 120% and EPS was TWD 21.7. Overall earnings continues to grow faster than revenue with collecting strong operating leverage and improved efficiency. Lastly, the financial position and cash flow. As of June 30, '26, Chroma maintained a solid financial position. Cash and short-term investment totaled TWD 13.68 billion, up to 65% from year to 2025 while shareholders' equity reached TWD 33.71 billion. The company remains in a net cash position. Yes. Okay. Inventory was TWD 11.58 billion, reflecting preparation for future demand. Inventory turnover days improved from 224 days to 177 days. indicating better inventory efficiency. Annualized ROE reached 54% and ROA reached 32%. Operating cash flow for the first half was TWD 5.35 billion with the major construction of our second manufacturing facility completed. Capital expenses are expected to moderate as a result of free cash flow reached TWD 3.9 billion, up to 86% year-over-year. That's basically the financial performance of our second quarter and the first half of 2026. And over to Jennifer.

Okay. Thank you. Please refer to Slide 9 for details on our product mix for the second quarter. For the Second quarter, the biggest driver of the growth still comes from the testing instruments and AT section, which saw a remarkable increase of 14% quarter-over-quarter and 129% year-over-year. This surge was mainly contributed from AI server power applications. Carefully, the AI server power application has accounted for over, I would say, 60% of this power business. The 10 shipments and ATS sales revenue for the first half already exceeds total revenue in 2025. In addition to AI power server powers, the basis sales project is ready to ship out from the third quarter. For semiconductor sectors, which has achieved revenue of TWD 4.4 billion in the second quarter and representing 29% growth quarter-over-quarter and double EBIT quarter-over-year. We do see the growth momentum on the inconductor sections has increased. The major growth driver were coming from system-level testers and tonic range by the sales revenue contribution. The semiconductor and the photonics will be the main contributions in the second half. We believe it was outperforming the first half. The driver system level test from the AI, HPC and ASIC and Photonics is mainly contributed from optics -- sorry, optical communication and CPO. As of today, we already received the PO for the insertion free and insertion for which start to contribute from the second half of this year. And now we move on to Q&A section.

[Operator Instructions] And our first question will be coming from [indiscernible], Berstein.

Congrats on your new warrants. I have questions about different segments. First all, for can you talk a little bit about your shipment progress for HVDC-related power testers?

So this would be the first question, right?

Yes.

Actually, as you may be from our first half results, we -- we deliver -- this is AI power, I would say, almost every month. So you can see like maybe, I would say, every month, the shipment is pretty much the same. -- based on the sales revenue. SP119046439 I see. But I guess the testers for HVDC power rec could be different versus the testers for all these power components like PSU you shipped over the past few months. So there's no difference between 400-volt and 800-volt.

Right. So do you mean that you already started mass shipment for both 400-volt and 800-volt HVDC power testers?

Yes, you could say that right on the day -- but just -- you just need to consider conversion doesn't mean the shipment. We could ship to our customers how the conversion that you may -- you need to ask our customers.

Sure, sure. And is there a trend like you see the orders of the HVDC power tester become stronger month by month? Or Yes, because recently, there is a rumor saying there's a delay of the HVDC power rack. Delta just hold their case, they said, the the production will start, but in small volume. I'm just wondering on the tester side, in which quarter would you see like large volume pickup for your testers?

But the issue is every quarter is pretty much the same. This is not very much like it's turning abounding down.

I see. How about the order momentum? I'm not talking about your shipment or the order.

But they already blocked up over whole year.

I see. Okay. But is there like they give you order for full year? And do they adjust every quarter?

They didn't adjust. They just keep pushing us to -- we have nothing -- I really don't understand how you help this related to how fast convert into their product shipment. But we actually deliver to all our customers almost every month. The pattern is pretty much the same. I really couldn't highlight okay, what's quarterly strong, which go is low?

I see. And I think in the second half last year, when we talk about your ATS your power tester, you you mentioned that you are quite -- that there is some capacity constraints like you can't fulfill the order. How about the situation now?

So beginning of this year, our face is already ready. So it started ramping up. Yes, our base share was not ready.

I see I see. Got it. And second question is about your ESS testers. I know these kind of projects tend to bring the lumpiness to recurring revenue. I understand the second quarter, there's 1 or 2 months that includes the ESS battery revenue. How about the rest of the year?

May not be a similar pattern as the last time. This is because we do see the battery cell demand continue to increase. So it's very hard for me to give you this kind of a guidance saying will be certain located up which month. But you will see in tests.

Do you mean you got a new order or it's the same order?

Well, I say increase that mean continue to increase, so the order is piling up. So it's more than we guide in the beginning of the year.

I see. And the last question is about the semi testers Yes. In your remarks, you said the semi momentum increase, including SLT and photonics. When you see momentum increase, do you mean versus 3 months ago comparing to your initial expectation, it grow? Or you just mean quarter-over-quarter, it's growth.

Okay. You may just -- you can detail, I'm sure you would build out the model of format. And then you definitely will notice that the growth rate -- I mean, semiconductor growth rate in the first quarter versus second quarter -- actually second quarter, this kind of growth rate increase. . And we need momentum to continue to increase in the second half. So we even give you a guidance that the second half will be better than outperforming in the first half. This is a very clear guidance, data equipment vendor.

[Operator Instructions] Next one. [indiscernible], Berstein.

Sorry, just 1 more follow-up question about the CEO. Just want to get some update versus 3 months ago. You said you have PO4 insertion free and set. Any difference versus 3 months ago?

Three months ago. Let me think about 3 months ago. We do see the other sizes bigger.

The order size is for this year or it's like rolling to months.

No, this year. because is very complicated in testing. I can tell you so far, customers only place the order up to 4 or not yet really rolling up to after 4. So I would say CPO is a very, very challenging technology, and we do see because due to its complexity and then the units to rebuy out?

Okay, I see. Because over the past 2 months, there's also concerns on the market about the the ramp-up of CPO. I know the key bottleneck is -- one of that is on the testing side, and there's a lot of challenges in the manufacturing -- so you are seeing that because of these difficulties, customers actually increased the order on Norton.

Yes. We already received the PO. So PO is, I would say, the best reference to prove this is actually an ongoing project.

And do you see other competitors in insertion 3 and insertion 4.

In store, 4 or is 100% initial by Chroma. So there is no competitor. But insertion 3, we already mentioned before we joined, there is actually peers.

SP119046439 I see. Okay. So you're competing with existing peers.

Yes. I don't think we compete. We actually have a better performance.

I see. And the PO is currently from a single customer or you have other customers under engagement.